SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 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 0-10831 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (Name of registrant as specified in its charter) California 94-2744492 (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) Registrant's telephone number (864) 239-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interests (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes _X__ No _ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ___ No _X__ State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2003. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None 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. 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; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, 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. PART I Item 1. Description of Business General Consolidated Capital Institutional Properties (the "Partnership" or "Registrant") was organized on April 28, 1981, as a Limited Partnership under the California Uniform Limited Partnership Act. On July 23, 1981, the Partnership registered with the Securities and Exchange Commission under the Securities Act of 1933 (File No. 2-72384) and commenced a public offering for the sale of $200,000,000 of limited partnership units (the "Units"). The sale of Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or gross proceeds of $200,342,000 to the Partnership. In accordance with its Partnership Agreement (the original partnership agreement of the Partnership together with all amendments thereto shall be referred to as the "Agreement"), the Partnership has repurchased and retired a total of 1,296.8 Units for a total purchase price of $1,000,000. The Partnership may repurchase any Units, at its absolute discretion, but is under no obligation to do so. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2011 unless terminated prior to such date. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC") was the Corporate General Partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc. ("CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships"), and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a wholly-owned subsidiary of AIMCO, a publicly held real estate investment trust. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was originally formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of CCEC, the former Corporate General Partner of the Partnership. See "Status of the Master Loan" for a description of the loan and settlement of EP's bankruptcy. Through December 31, 2003, the Partnership had advanced a total of approximately $180,500,000 to EP and its successor under the Master Loan (as defined in "Status of the Master Loan"). EP used the proceeds from these loans to acquire 18 apartment complexes and four office complexes, which served as collateral for the Master Loan. The Partnership acquired The Loft Apartments through foreclosure in 1990. Prior to that time, The Loft Apartments had been collateral on the Master Loan. The Partnership acquired a multiple-use building, The Sterling Apartment Homes and Commerce Center ("The Sterling"), through a deed-in-lieu of foreclosure transaction in 1995. The Sterling was also collateral on the Master Loan. In 2002, the General Partner decided to foreclose on the remaining properties that collateralized the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure on all the properties in CCEP. During the year ended December 31, 2002 the Partnership acquired four of the properties held by CCEP through deeds in lieu of foreclosure. In addition, one property held by CCEP was sold in December 2002. All these properties had been collateral on the Master Loan. The foreclosure process on the remaining four properties held by CCEP was completed during the fourth quarter of 2003. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties during the years ended December 31, 2003 and 2002, respectively. For a brief description of the properties owned by the Partnership, refer to "Item 2 - - Description of Properties". The Registrant has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. Property management services are performed at the Partnership's properties by an affiliate of the General Partner. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential and commercial properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those residential properties which may be managed by an affiliate of the General Partner in such market area, could have a material effect on the rental market for the apartments and the commercial space at the Partnership's properties and the rents that may be charged for such apartments and space. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as an oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, reduced availability of permanent mortgage financing, changes in zoning laws or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential and commercial properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in Management's Discussion and Analysis of Financial Condition and Results of Operations included in "Item 7" of this Form 10-K. Segments Segment data for the years ended December 31, 2003, 2002 and 2001 is included in "Item 8. Financial Statements - Note K" and is an integral part of the Form 10-K. Status of the Master Loan Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP subject to a nonrecourse note with a participation interest (the "Master Loan"), pursuant to the Master Loan Agreement dated July 22, 1981, between the Partnership and EP. The Partnership secured the Master Loan with deeds of trust or mortgages on real property purchased with the funds advanced, as well as by the assignment and pledge of promissory notes from the partners of EP. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"), EP was converted from a California General Partnership to a California Limited Partnership, Consolidated Capital Equity Partners, L.P., ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole General Partner of CCEP and an affiliate of the Partnership. The General Partners of EP became Limited Partners in CCEP. CHI had full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. For 1992, Excess Cash Flow was generally defined in the New Master Loan Agreement as net cash flow from operations after third-party debt service. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow had the effect of reducing income on the investment in the Master Loan by the amount of CCEP's capital expenditures since such amounts were previously excluded from Excess Cash Flow. Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrued at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. Interest payments were payable quarterly in an amount equal to "Excess Cash Flow". If such Excess Cash Flow payments were less than the current accrued interest during the quarterly period, the unpaid interest was added to principal, compounded annually, and was payable at the loan's maturity. If such Excess Cash Flow payments were greater than the current accrued interest, the excess amount was applied to the principal balance of the loan. Any net proceeds from the sale or refinancing of any of CCEP's properties were paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralize the Master Loan or extending the terms of the loan. The General Partner decided to foreclose on the properties that collateralize the Master Loan. During the year ended December 31, 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold in December 2002. The foreclosure process on the remaining four properties held by CCEP was completed during the fourth quarter of 2003. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties during the years ended December 31, 2003 and 2002, respectively. Prior to the foreclosure in 2003, the principal balance of the Master Loan due to the Partnership totaled approximately $14,123,000. This amount represented the estimated fair market value of the remaining properties held by CCEP, less the net liabilities owed by the properties. Interest, calculated on the accrual basis, due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements due to the impairment of the loan, totaled approximately $1,520,000 and $462,000 for the years ended December 31, 2003 and 2002, respectively. Interest income is recognized on the cash basis in accordance with SFAS 114. The cumulative unrecognized interest owed on the Master Loan was forgiven by the Partnership when the properties were foreclosed on during 2003 and 2002. Item 2. Description of Properties The following table sets forth the Partnership's investment in real estate as of December 31, 2003: Date of Property Acquisition Type of Ownership Use The Loft Apartments 11/19/90 Fee ownership, subject to Apartment Raleigh, NC a first mortgage 184 units The Sterling Apartment Homes 12/01/95 Fee ownership subject to Apartment and Commerce Center a first mortgage (1) 536 units Philadelphia, PA Commercial 110,368 sq ft Silverado Apartments 8/09/02 Fee ownership, subject to Apartment El Paso, TX a first mortgage 248 units The Knolls Apartments 8/09/02 Fee ownership, subject to Apartment Colorado Springs, CO a first mortgage 262 units Indian Creek Village Apartments 8/09/02 Fee ownership, subject to Apartment Overland Park, KS a first mortgage 274 units Tates Creek Village Apartments 8/13/02 Fee ownership, subject to Apartment Lexington, KY a first mortgage 204 units Plantation Gardens 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 372 units Plantation, FL Palm Lake 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 150 units Tampa, FL The Dunes Apartments 11/10/03 Fee ownership, subject to Apartment Indian Harbor, FL a first mortgage 200 units Regency Oaks 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 343 units Fern Park, FL (1) Property is held by a Limited Partnership in which the Registrant ultimately owns a 100% interest. Schedule of Properties: Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis at December 31, 2003. Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) The Loft Apartments $ 7,676 $ 4,652 5-30 yrs S/L $ 4,417 The Sterling Apartment Homes and Commerce Center 36,426 16,849 5-30 yrs S/L 23,599 Silverado 4,863 198 5-30 yrs S/L 4,604 The Knolls 15,546 617 5-30 yrs S/L 14,862 Indian Creek Village 12,377 482 5-30 yrs S/L 11,716 Tates Creek Village 6,458 284 5-30 yrs S/L 6,075 Plantation Gardens 19,282 43 5-30 yrs S/L 18,951 Palm Lake 4,364 13 5-30 yrs S/L 4,291 The Dunes 6,882 19 5-30 yrs S/L 6,782 Regency Oaks 8,984 37 5-30 yrs S/L 8,827 $122,858 $23,194 $104,124 See "Note A" of the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness: The following table sets forth certain information relating to the mortgages encumbering the Partnership's properties at December 31, 2003. Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2003 Rate Amortized Date Maturity (1) (in thousands) (in thousands) The Loft Apartments 1st mortgage $ 4,064 6.95% 360 months 12/01/05 $ 3,903 The Sterling Apartment Homes and Commerce Center 1st mortgage 21,654 6.77% 120 months 10/01/08 19,975 Silverado Apartments 1st mortgage 3,264 7.87% 240 months 11/01/10 2,434 The Knolls Apartments 1st mortgage 9,180 7.78% 240 months 03/01/10 7,105 Indian Creek Village Apartments 1st mortgage 8,117 7.83% 240 months 01/01/10 6,351 Tates Creek Village Apartments 1st mortgage 3,909 7.78% 240 months 04/01/10 3,017 Plantation Gardens Apartments 1st mortgage 8,999 7.83% 240 months 03/01/10 6,972 Palm Lake Apartments 1st mortgage 2,777 7.86% 240 months 02/01/10 2,158 The Dunes Apartments 1st mortgage 3,812 7.81% 240 months 02/01/10 2,960 Regency Oaks Apartments 1st mortgage 7,078 7.80% 240 months 02/01/10 5,494 $ 72,854 Unamortized mortgage premiums 2,341 $ 75,195 $60,369 (1) See "Item 8. Financial Statements and Supplementary Data - Note D" for information with respect to the Partnership's ability to prepay these mortgages and other specific details about the mortgages. Rental Rates and Occupancy: Average annual rental rates and occupancy for 2003 and 2002 for each property: Average Annual Average Rental Rates Occupancy Property 2003 2002 2003 2002 The Loft Apartments $ 8,047/unit $ 8,605/unit 85% 90% The Sterling Apartment Homes 16,893/unit 16,974/unit 94% 91% The Sterling Commerce Center 17.90/s.f. 18.17/s.f. 57% 56% Silverado Apartments 5,637/unit 6,661/unit 95% 96% The Knolls Apartments 8,294/unit 10,106/unit 81% 88% Indian Creek Village Apartments 8,266/unit 9,824/unit 91% 92% Tates Creek Village Apartments 7,661/unit 8,615/unit 90% 90% Plantation Gardens Apartments 9,594/unit 9,669/unit 91% 91% Palm Lake Apartments 8,021/unit 7,987/unit 94% 94% The Dunes Apartments 7,676/unit 7,493/unit 92% 92% Regency Oaks Apartments 7,260/unit 7,357/unit 95% 89% The General Partner attributes the decrease in occupancy at The Loft Apartments and The Knolls Apartments to the competitive market of the apartment industry in the properties' respective locations. The increase in occupancy at The Sterling Apartments Homes is due to improved market conditions. The increase in occupancy at Regency Oaks Apartments is due to site improvements and improved customer service. The General Partner attributes the low occupancy at The Sterling Commerce Center to the loss of a major tenant in late December 2001. During the fourth quarter of 2003, a new tenant signed a lease and occupied a large portion of the vacant space. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes and commercial properties in the area. The General Partner believes that all of the properties are adequately insured. Each apartment complex leases properties for terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. The following is a schedule of the lease expirations of the commercial space for The Sterling Commerce Center for the years beginning 2003 through the maturities of the current leases. Number of % of Gross Expirations Square Feet Annual Rent Annual Rent 2004 5 9,110 $144,861 12.32% 2005 3 4,500 90,426 7.69% 2006 6 21,908 327,730 27.87% 2007 3 7,347 217,622 18.51% 2008 3 5,315 104,532 8.89% 2010 3 28,094 290,608 24.72% One commercial tenant (The Deveraux Foundation) leases 22.6% of available rental space. No other commercial tenant leases 10% or more of the available space. Real Estate Taxes and Rates: Real estate taxes and rates in 2003 for each property were: Billing Rate (in thousands) The Loft Apartments $ 91 1.03% The Sterling Apartment Homes and Commerce Center 743 8.85% Silverado Apartments 143 3.03% The Knolls Apartments 53 5.91% Indian Creek Village Apartments 120 9.32% Tates Creek Village Apartments 59 0.96% Plantation Gardens Apartments 327 2.27% Palm Lake Apartments 93 2.28% The Dunes Apartments 136 2.34% Regency Oaks Apartments 146 1.65% Capital Improvements: The Loft During the year ended December 31, 2003, the Partnership completed approximately $97,000 of capital improvements, consisting primarily of floor covering and roof replacements. These improvements were funded from operating cash flow and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $101,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Sterling During the year ended December 31, 2003, the Partnership completed approximately $527,000 of capital improvements at The Sterling Apartment Homes and Commerce Center, consisting primarily of floor covering replacements, air conditioning upgrades, tenant improvements and reconstruction of two apartment units damaged by an electrical fire. These improvements were funded from operating cash flow, insurance proceeds, and replacement reserves. The Partnership is currently evaluating the capital improvements needs of the property for the upcoming year and expects to budget approximately $295,000 for the apartments and approximately $13,000 for the Commerce Center. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Silverado Apartments During the year ended December 31, 2003, the Partnership completed approximately $72,000 of capital improvements at Silverado Apartments consisting primarily of floor covering and appliance replacements, water heater replacements and electrical upgrades. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $136,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The Knolls Apartments During the year ended December 31, 2003, the Partnership completed approximately $372,000 of capital improvements at The Knolls Apartments consisting primarily of major landscaping, structural improvements, floor covering and appliance replacements and air conditioning unit upgrades. These improvements were funded from operating cash flow and capital reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $144,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Indian Creek Village Apartments During the year ended December 31, 2003, the Partnership completed approximately $149,000 of capital improvements at Indian Creek Village Apartments consisting primarily of floor covering and appliance replacements and structural improvements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $151,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Tates Creek Village Apartments During the year ended December 31, 2003, the Partnership completed approximately $166,000 of capital improvements at Tates Creek Village Apartments consisting primarily of plumbing improvements, major landscaping required due to damages caused by an ice storm and air conditioning unit and floor covering replacements. These improvements were funded from operating cash flow and insurance proceeds. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $112,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Plantation Gardens Apartments The Partnership completed approximately $19,000 of capital improvements at Plantation Gardens Apartments as of December 31, 2003, consisting primarily of floor covering replacements and electrical upgrades. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvements needs of the property for the upcoming year and expects to budget approximately $205,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Palm Lake Apartments The Partnership completed approximately $6,000 of capital improvements at Palm Lake Apartments as of December 31, 2003, consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $83,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The Dunes Apartments The Partnership completed approximately $6,000 of capital improvements at The Dunes Apartments as of December 31, 2003, consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $110,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Regency Oaks Apartments The Partnership completed approximately $58,000 of capital improvements at Regency Oaks Apartments as of December 31, 2003, consisting primarily of floor covering replacements, structural improvements, air conditioning upgrades, and other building improvements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and expects to budget approximately $189,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The additional capital improvements at the Partnership's properties will be made only to the extent of cash 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. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, 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 Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. 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 at least one round of tender offers 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 provided 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. On June 13, 2003, the Court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the Court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the Settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the Court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the Court heard oral argument on the motions and denied them both in their entirety. On January 28, 2004, Objector filed his opening brief in his pending appeal. The General Partner is currently scheduled to file a brief in support of the order approving settlement and entering judgment thereto by April 23, 2004. On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner, was served with a Complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The Complaint is styled as a Collective Action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the Complaint alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call". The Complaint also attempts to certify a subclass for salaried service directors who are challenging their classification as exempt from the overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to the Complaint denying the substantive allegations. Discovery is currently underway. 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 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2003, no matter was submitted to a vote of unitholders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partner Matters The Partnership, a publicly-held limited partnership, offered and sold 200,342 limited partnership units (the "Units") aggregating $200,342,000. The Partnership currently has 11,454 holders of record owning an aggregate of 199,043.2 Units. Affiliates of the General Partner owned 129,695.10 units or 65.16% at December 31, 2003. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the years ended December 31, 2001, 2002 and 2003: Distributions Per Limited Aggregate Partnership Unit (in thousands) 01/01/01 - 12/31/01 $15,757 (1) $ 78.83 01/01/02 - 12/31/02 3,572 (2) 17.79 01/01/03 - 12/31/03 3,424 (3) 17.11 (1) Consists of approximately $6,646,000 of cash from operations and approximately $9,111,000 of cash from surplus funds, of which approximately $1,425,000 was from the receipt of previously undistributed net financing and refinancing proceeds from CCEP and approximately $6,019,000 was from the receipt of net sales proceeds from CCEP. (2) Consists of approximately $3,098,000 of cash from operations and approximately $474,000 of cash from surplus funds. (3) Consists of approximately $1,793,000 of cash from operations and approximately $1,631,000 of cash from sales proceeds from CCEP for sale of Society Park Apartments. 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 planned capital expenditures, to permit distributions to its partners in 2004 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to planned capital expenditures at the properties. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units (the "Units") in the Partnership representing 65.16% of the outstanding Units at December 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard on February 20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all units for a purchase price of $239.13 per Unit. The tender offer will expire on April 9, 2004. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 65.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all 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. Item 6. Selected Financial Data The following table sets forth a summary of selected financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in "Item 8. Financial Statements and Supplementary Data". FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 2000 1999 STATEMENTS OF OPERATIONS (in thousands, except per unit data) Total revenues $ 18,607 $ 14,646 $ 15,484 $ 14,193 $ 13,545 Total expenses (18,541) (13,159) (11,582) (10,823) (9,773) Reduction in provision for impairment loss -- -- 3,176 14,241 -- Income from continuing operations 66 1,487 7,078 17,611 3,772 Gain on foreclosure of real estate 839 1,831 -- -- -- Equity in income of 1,146 -- -- -- -- investment Net income $ 2,051 $ 3,318 $ 7,078 $ 17,611 $ 3,772 Net income per Limited Partnership Unit $ 10.20 $ 16.50 $ 35.20 $ 87.59 $ 18.76 Distributions per Limited Partnership Unit $ 17.11 $ 17.79 $ 78.83 $ 240.55 $ 113.65 Limited Partnership Units outstanding 199,043.2 199,043.2 199,045.2 199,045.2 199,045.2 AS OF DECEMBER 31, BALANCE SHEETS 2003 2002 2001 2000 1999 (in thousands) Total assets $105,398 $ 83,331 $ 56,089 $ 65,383 $ 95,668 Mortgage note payable $ 75,195 $ 52,649 $ 26,457 $ 26,762 $ 27,074 The comparability of the information above has been affected by the foreclosure on the eight CCEP properties. See "Item 1. Description of Business" for further information. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This item should be read in conjunction with "Item 8. Financial Statements and Supplementary Data" and other items contained elsewhere in this report. Results of Operations 2003 Compared to 2002 The Partnership's net income for the year ended December 31, 2003 was approximately $2,051,000 compared to net income of approximately $3,318,000 for the corresponding period in 2002. The decrease in net income for the year ended December 31, 2003 as compared to the year ended December 31, 2002 is primarily due to an increase in total expenses, a decrease in gain on foreclosure of real estate and a decrease in interest payments received and therefore recognized on the Master Loan partially offset by an increase in total revenues and an increase in equity in income of investment. Interest income on investment in Master Loan is only recognized to the extent that actual cash is received. The receipt of cash was dependent on the corresponding cash flow of the properties which secured the Master Loan. The decrease in gain on foreclosure of real estate and the increase in total expenses is largely due to the acquisition at a foreclosure sale of four properties (Plantation Gardens, Palm Lake, The Dunes and Regency Oaks Apartments) during November 2003 and the foreclosure of four properties (Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments) during August 2002. The Master Loan matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralized the Master Loan or extending the terms of the Master Loan. The General Partner decided to foreclose on the properties that collateralized the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold during December 2002. The foreclosure process on the remaining four properties held by CCEP was completed during the fourth quarter of 2003. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties during the fourth quarter of 2003 and the third quarter of 2002, respectively. In November 2003, the Partnership acquired the four remaining properties held by CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes Apartments, and Palm Lake Apartments. These properties were sold at a foreclosure sale due to CCEP's inability to repay the Master Loan and accrued interest. An affiliate of the General Partner advanced the Partnership approximately $31,278,000 in order to purchase these properties at the sale. Approximately $523,000 was retained by the court for its costs and was capitalized as acquisition costs by the Partnership and will be amortized over the estimated useful life of the properties. The advance bore interest at prime plus 2% and the Partnership paid approximately $114,000 in interest expense for the period the loan was outstanding during 2003. The Partnership acquired the properties previously held by CCEP subject to the existing liens on the properties including the first mortgage loans. As a result of the acquisition of these remaining four properties that were held by CCEP, the Partnership recognized a gain on foreclosure of approximately $839,000 which was the excess of the actual fair market value of the properties at the time of the foreclosure sale over the value of the Master Loan balance collateralized by the properties. CCIP intends to continue to operate these properties as residential apartment complexes. Exclusive of the items related to the Master Loan, the gain on foreclosure of real estate, and the operations of the foreclosed properties, the Partnership recognized net income for the year ended December 31, 2003 of approximately $122,000 compared to net income of approximately $461,000 for the corresponding period in 2002. The decrease in net income for the year ended December 31, 2003 as compared to the year ended December 31, 2002 is primarily due to an increase in total expenses and a decrease in total revenues. Total expenses, exclusive of the foreclosed properties, increased during the year ended December 31, 2003 primarily due to increases in operating expenses and general and administrative expenses partially offset by a decrease in depreciation expense. Operating expense increased during the year ended December 31, 2003 primarily due to an increase in property and maintenance expenses. Property expenses increased due to an increase in utility expenses at The Sterling Apartment Homes and Commerce Center and increased contract security patrol expenses at The Sterling Commerce Center partially offset by a decrease in salaries and other related benefits and contract security patrol expenses at The Sterling Apartment Homes. Maintenance expenses increased due to an increase in contract services at Sterling Apartment Homes and The Loft Apartments. Depreciation expense decreased during the year ended December 31, 2003 due to capital improvements and replacements becoming fully depreciated during the past year at The Sterling. The increase in general and administrative expenses for the year ended December 31, 2003 is primarily due to an increase in the costs of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement and professional fees associated with the management of the Partnership's properties. Also included in general and administrative expense for the year ended December 31, 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. The decrease in total revenues, exclusive of the foreclosed properties, during the year ended December 31, 2003 is primarily due to a decrease in rental income and other income. Rental income decreased primarily due to a decrease in rental rates at Sterling Apartment Homes and Commerce Center and The Loft Apartments and a decrease in occupancy at The Loft Apartments. The decrease is also due to an increase in concession related expenses at The Sterling Apartment Homes. These decreases were partially offset by an increase in occupancy at The Sterling Apartment Homes and Commerce Center. The decrease in other income is primarily due to a decrease in utility reimbursements at The Sterling Apartment Homes. The equity in income from investment for the year ended December 31, 2003 is due to the recognition of the Partnership's share of distributions received and recognized as earnings from affiliated partnerships in excess of investment balance. The Partnership assumed investments in three affiliated partnerships during the foreclosure of investment properties from CCEP as discussed above. These investments are accounted for on the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During the years ended December 31, 2003 and 2002, the Partnership received approximately $1,048,000 and $23,000, respectively, in distributions from two of the partnerships. Approximately $1,015,000 of the distributions related to the sale of three of the properties in Consolidated Capital Growth Fund. Of this amount, approximately $984,000 was recognized as equity in income from investment once the investment balance allocated to those properties had been reduced to zero. The Partnership also recognized equity in income from investment of approximately $162,000 which included the allocation of gain from the sale of a property in Consolidated Capital Properties IV. There was no distribution associated with this sale. 2002 Compared to 2001 The Partnership's net income for the year ended December 31, 2002 was approximately $3,318,000 compared to net income of approximately $7,078,000 for the corresponding period in 2001. The decrease in net income for the year ended December 31, 2002 as compared to the year ended December 31, 2001 is primarily due to the $3,176,000 reduction of the provision for impairment loss on the investment in the Master Loan recognized during the year ended December 31, 2001, a decrease of approximately $2,894,000 in interest payments received and therefore recognized on the Master Loan, and an increase in total expenses partially offset by the revenues of the four foreclosed properties and by a gain on foreclosure of real estate of approximately $1,831,000. The reduction of the provision for impairment loss on the Master Loan was recognized in 2001 due to an increase in the net realizable value of the collateral properties and the payment of principal on the Master Loan from the sales proceeds of Magnolia Trace Apartments during the year ended December 31, 2001. The General Partner evaluated the net realizable value on a semi-annual basis or when circumstances dictated that it should be analyzed. Interest income on investment in Master Loan is only recognized to the extent that actual cash is received. The receipt of cash is dependent on the corresponding cash flow of the properties which secure the Master Loan. The gain on foreclosure of real estate was due to the foreclosure of four properties (Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments) during 2002. The Master Loan matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralize the Master Loan or extending the terms of the loan. The General Partner decided to foreclose on the properties that collateralize the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold during December 2002 (see "CCEP Property Operations" for further discussion). As the deeds are executed, title in the properties previously owned by CCEP are transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties. Excluding the items related to the Master Loan, and the gain on foreclosure of real estate, the Partnership's net income for the year ended December 31, 2002 and 2001 was approximately $1,101,000 and $622,000, respectively. This increase in net income for the year ended December 31, 2002 is due to an increase in total revenues partially offset by an increase in total expenses. The increase in total revenues for the year ended December 31, 2002 is due to increases in rental income and other income. The increase in rental income is due to the addition of the four foreclosed properties and increased rental rates at Sterling Apartment Homes and Sterling Commercial Center, partially offset by a decrease in occupancy at The Sterling Commerce Center and The Sterling Apartment Homes and a decrease in average rental rates at The Loft Apartments. The increase in other income for the year ended December 31, 2002 is due to the foreclosure of the four properties and an increase in utility reimbursements at The Sterling, partially offset by reduced interest income due to lower average cash balances in interest bearing accounts. Total expenses increased for the year ended December 31, 2002 due to the foreclosure of the four properties. Exclusive of the operations of the foreclosed properties, expenses decreased due to decreases in operating expenses and depreciation expense partially offset by an increase in general and administrative expenses. Operating expense decreased primarily due to a decrease in property, amortization and maintenance expenses and management fees. Property expenses decreased due to a decrease in salaries and related benefits and utility expenses at Sterling Apartment Homes and utility charges at The Sterling and The Loft Apartments. Amortization expense decreased due to the write-off in 2001 of unamortized lease commissions relating to a tenant which moved out in December 2001. Maintenance expenses decreased due to an increase in the capitalization of certain direct and indirect project costs, primarily payroll related costs, at the properties (see "Item 8. Financial Statements and Supplementary Data, Note A - Organization and Significant Accounting Policies".) Management fees decreased due to reduced rental revenue at The Sterling Apartment Homes and The Sterling Commercial Center. Depreciation expense decreased due to capital improvements and replacements becoming fully depreciated during the past year at The Sterling. General and administrative expense increased for the year ended December 31, 2002 due to an increase in the costs of services included in the management reimbursements to the General Partner allowed under the Partnership Agreement and legal expenses related to the foreclosures of the four properties offset by a decrease due to the timing of an increase in the business privilege tax paid to the city of Philadelphia. 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, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Capital Resources and Liquidity At December 31, 2003, the Partnership had cash and cash equivalents of approximately $2,417,000 compared to approximately $3,175,000 at December 31, 2002. Cash and cash equivalents decreased approximately $758,000 since December 31, 2002 due to approximately $4,750,000 and $628,000 of cash used in financing and investing activities, respectively, partially offset by approximately $4,620,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to partners, principal payments made on the mortgages encumbering the Partnership's properties, lease commissions paid and repayment of advances from the general partner, partially offset by advances from the general partner. Cash used in investing activities consisted of property improvements and replacements partially offset by distributions received from affiliated partnerships, insurance proceeds, principal receipts on the Master Loan and net withdrawals from escrow accounts maintained by the mortgage lenders. The Partnership invests its working capital reserves in interest bearing accounts. During the years ended December 31, 2003, 2002 and 2001, the Partnership received approximately $15,000, $1,719,000 and $7,801,000 in principal payments on the Master Loan. Approximately $88,000 and $357,000 was received during the years ended December 31, 2002 and 2001, respectively, representing cash received from distributions from three affiliated partnerships which were required to be transferred to the Partnership under the terms of the Master Loan. In addition, during the years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was received representing proceeds received from the sale of Society Park Apartments. For 2001, approximately $6,019,000 was received representing net proceeds from the sale of Magnolia Trace and approximately $1,425,000 was received representing additional proceeds received for the refinancing of the mortgages encumbering nine of the investment properties in 2000. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. 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. The Partnership is currently evaluating the capital improvements needs of all its properties for the upcoming year. The minimum amount to be budgeted is expected to be approximately $1,526,000 for all the apartment complexes and approximately $13,000 for the Sterling Commerce Center. Additional improvements may be considered in 2004 and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnership's properties of approximately $75,195,000 requires monthly payments of principal and interest, and balloon payments of approximately $3,903,000, $19,975,000 and $36,491,000 during 2005, 2008 and 2010, respectively. The General Partner will 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 may risk losing such properties through foreclosure. The Partnership distributed the following amounts during the years ended December 31, 2001, 2002 and 2003 (in thousands, except per unit data): Distributions Per Limited Aggregate Partnership Unit 01/01/01 - 12/31/01 $15,757 (1) $ 78.83 01/01/02 - 12/31/02 3,572 (2) 17.79 01/01/03 - 12/31/03 3,424 (3) 17.11 (1) Consists of approximately $6,646,000 of cash from operations and approximately $9,111,000 of cash from surplus funds, of which approximately $1,425,000 was from the receipt of previously undistributed net financing and refinancing proceeds from CCEP and approximately $6,019,000 was from the receipt of net sales proceeds from CCEP. (2) Consists of approximately $3,098,000 of cash from operations and approximately $474,000 of cash from surplus funds. (3) Consists of approximately $1,793,000 of cash from operations and approximately $1,631,000 of cash from sales proceeds from CCEP for sale of Society Park Apartments. 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 planned capital improvement expenditures, to permit any distributions to its partners during 2004 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units (the "Units") in the Partnership representing 65.16% of the outstanding Units at December 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard on February 20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all units for a purchase price of $239.13 per Unit. The tender offer will expire on April 9, 2004. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 65.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all 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. During the years ended December 31, 2003, 2002 and 2001 CCEP paid approximately $15,000, $1,719,000 and $7,801,000 in principal payments on the Master Loan. Approximately $88,000 and $357,000 was paid during the years ended December 31, 2002 and 2001, respectively, representing cash received from distributions from three affiliated partnerships. These funds were required to be transferred to the Partnership under the terms of the Master Loan. In addition, during the years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was paid representing proceeds received from the sale of Society Park Apartments. For 2001, approximately $6,019,000 was paid representing net proceeds from the sale of Magnolia Trace and approximately $1,425,000 was paid representing additional proceeds received for the refinancing of the mortgages encumbering nine of the investment properties in 2000. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Significant Accounting Policies" which is included in the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. 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, and the investment properties foreclosed upon in the third quarter of 2002 and fourth quarter of 2003 were recorded at fair market value at the time of the foreclosures. 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, but are not limited to, 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 impairment of 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. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with SFAS No. 13, "Accounting for Leases". Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the leases. For all other leases, minimum rents are recognized over the terms of the leases. Investment in Master Loan to Affiliates and Interest Income Recognition The investment in the Master Loan was evaluated for impairment based upon the fair value of the collateral properties as the collateral was the sole basis of repayment of the loan. The fair value of the remaining collateral properties was based on the fair market value of those properties. If the fair value of a collateral property increased or decreased for other than temporary conditions, then the allowance on the Master Loan was adjusted appropriately. The investment in the Master Loan was considered to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment, interest income was recognized on the cash basis of accounting. Item 7a. Market Risk Factors The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for its borrowing activities used to maintain liquidity and fund business operations. To mitigate the impact of fluctuations in U.S. interest rates, the Partnership maintains its debt as fixed rate in nature by borrowing on a long-term basis. Based on interest rates at December 31, 2003, a 100 basis point increase or decrease in market interest rates would impact Partnership income approximately $513,000. The following table summarizes the Partnership's debt obligations at December 31, 2003. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximates its carrying amount at December 31, 2003. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 7.29% (in thousands) 2004 $ 1,763 2005 5,835 2006 1,999 2007 2,157 2008 22,192 Thereafter 38,908 Total $72,854 Item 8. Financial Statements and Supplementary Data CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Operations for the Years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Changes in Partners' Capital for the Years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the Years ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Institutional Properties We have audited the accompanying consolidated balance sheets of Consolidated Capital Institutional Properties as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Institutional Properties at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Greenville, South Carolina February 27, 2004 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) December 31, 2003 2002 Assets Cash and cash equivalents $ 2,417 $ 3,175 Receivables and deposits 404 493 Restricted escrows 922 1,114 Other assets 999 592 Investment in affiliated partnerships (Note H) 992 894 Investment in Master Loan to affiliate (Note C) -- 14,144 Investment properties (Notes D and F): Land 22,780 14,272 Buildings and related personal property 100,078 67,805 122,858 82,077 Less accumulated depreciation (23,194) (19,158) 99,664 62,919 $105,398 $ 83,331 Liabilities and Partners' Capital Liabilities Accounts payable $ 211 $ 176 Tenant security deposit liabilities 964 689 Accrued property taxes 564 326 Other liabilities 1,499 1,408 Due to affiliates (Note E) 255 -- Mortgage notes payable (Note D) 75,195 52,649 78,688 55,248 Partners' Capital General partner 128 125 Limited partners (199,043.2 units issued and outstanding) 26,582 27,958 26,710 28,083 $105,398 $ 83,331 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data) Years Ended December 31, 2003 2002 2001 Revenues: Rental income $ 17,209 $ 13,232 $ 11,305 Interest income on investment in Master Loan to affiliate (Note C) -- 386 3,280 Reduction of provision for impairment loss (Note C) -- -- 3,176 Other income 1,381 1,028 899 Casualty gain (Note J) 17 -- -- Total revenues 18,607 14,646 18,660 Expenses: Operating 8,334 5,649 5,168 General and administrative 1,151 836 720 Depreciation 4,056 3,189 2,980 Interest 3,884 2,482 1,889 Property taxes 1,116 1,003 825 Total expenses 18,541 13,159 11,582 Income from operations 66 1,487 7,078 Gain on foreclosure of real estate (Note C) 839 1,831 -- Equity in income of investment (Note H) 1,146 -- -- Net income (Note B) $ 2,051 $ 3,318 $ 7,078 Net income allocated to general partner (1%) $ 21 $ 33 $ 71 Net income allocated to limited partners (99%) 2,030 3,285 7,007 $ 2,051 $ 3,318 $ 7,078 Per limited partnership unit: Income from operations $ 0.33 $ 7.39 $ 35.20 Gain on foreclosure of real estate 4.17 9.11 -- Equity in income of investment 5.70 -- -- Net income per limited partnership unit $ 10.20 $ 16.50 $ 35.20 Distributions per limited partnership unit $ 17.11 $ 17.79 $ 78.83 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 200,342.0 $ 1 $200,342 $200,343 Partners' capital at December 31, 2000 199,045.2 118 36,898 37,016 Distributions to partners -- (66) (15,691) (15,757) Net income for the year ended December 31, 2001 -- 71 7,007 7,078 Partners' capital at December 31, 2001 199,045.2 123 28,214 28,337 Abandonment of limited partnership units (Note I) (2.0) -- -- -- Distributions to partners -- (31) (3,541) (3,572) Net income for the year ended December 31, 2002 -- 33 3,285 3,318 Partners' capital at December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083 Distributions to partners -- (18) (3,406) (3,424) Net income for the year ended December 31, 2003 -- 21 2,030 2,051 Partners' capital at December 31, 2003 199,043.20 128 26,582 26,710 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2003 2002 2001 Cash flows from operating activities: Net income $ 2,051 $ 3,318 $ 7,078 Adjustments to reconcile net income to net cash provided by operating activities: Gain on foreclosure of real estate (839) (1,831) -- Depreciation 4,056 3,189 2,980 Amortization of loan costs, lease commissions and Mortgage premiums (68) 43 316 Equity in income of investment (1,146) -- -- Reduction of provision for impairment loss -- -- (3,176) Casualty gain (17) -- -- Change in accounts: Receivables and deposits 347 6 518 Other assets (90) (24) 78 Accounts payable (146) 50 (63) Tenant security deposit liabilities (6) (5) (109) Accrued property taxes (328) 88 -- Due to affiliates 912 -- -- Other liabilities (106) 593 (138) Net cash provided by operating activities 4,620 5,427 7,484 Cash flows from investing activities: Property improvements and replacements (1,472) (582) (398) Acquisition costs paid (523) -- -- Insurance proceeds received 112 -- -- Net receipts from (deposits to) restricted escrows 192 (205) 61 Principal receipts on Master Loan 15 1,719 7,801 Distributions from affiliated partnerships 1,048 24 -- Net cash (used in) provided by investing activities (628) 956 7,464 Cash flows from financing activities: Distributions to partners (3,424) (3,572) (15,757) Payments on mortgage notes payable (1,128) (558) (305) Lease commissions paid (198) -- -- Advances from general partner 31,498 -- -- Repayment of advances from general partner (31,498) -- -- Net cash used in financing activities (4,750) (4,130) (16,062) Net (decrease) increase in cash and cash equivalents (758) 2,253 (1,114) Cash and cash equivalents at beginning of year 3,175 922 2,036 Cash and cash equivalents at end of year $ 2,417 $ 3,175 $ 922 Supplemental disclosure of cash flow information: Cash paid for interest $ 4,135 $ 2,467 $ 1,702 Supplemental disclosure of non-cash transactions: Property improvements and replacements capitalized as part of a settlement with a tenant that vacated its space $ -- $ -- $ 498 See Accompanying Notes to Consolidated Financial Statements SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES Foreclosure During the year ended December 31, 2003, Plantation Gardens, Palm Lake, The Dunes and Regency Oak Apartments were purchased at a foreclosure sale by the Partnership. During the year ended December 31, 2002, Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments were foreclosed upon by the Partnership. In connection with the transactions above, the following accounts were adjusted by the non-cash amounts in 2003 and 2002, as follows: 2003 2002 Receivables and deposits $ (258) $ (66) Investment in Master Loan to affiliates 14,129 10,567 Restricted escrows -- (517) Other assets (205) 11 Investment properties (38,901) (38,273) Investments in affiliated partnerships -- (918) Accounts payable 181 -- Tenant security deposit liabilities 281 128 Accrued property taxes 566 238 Due to affiliates (657) -- Other liabilities 197 212 Mortgage notes payable 23,828 26,787 Gain on foreclosure of real estate $ (839) $ (1,831) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 Note A - Organization and Significant Accounting Policies Organization: Consolidated Capital Institutional Properties (the "Partnership" or "Registrant"), a California Limited Partnership, was formed on April 28, 1981, to lend funds through nonrecourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, Consolidated Capital Equity Partners, ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former Corporate General Partner. Through December 31, 2003, the Partnership had advanced a total of approximately $180,500,000 to EP and its successor under the Master Loan. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2011 unless terminated prior to such date. Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the Corporate General Partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI"), acquired CCEC's General Partner interests in the Partnership and in 15 other affiliated public Limited Partnerships (the "Affiliated Partnerships") and replaced CCEC as Managing General Partner in all 16 partnerships. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"). EP was converted from a California General Partnership to a California Limited Partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole general partner of CCEP and an affiliate of the Partnership. The General Partners of EP became Limited Partners in CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a wholly-owned subsidiary of AIMCO, a publicly held real estate investment trust. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one of the properties held by CCEP was sold in December 2002. The foreclosure process on the remaining four properties held by CCEP was completed during the fourth quarter of 2003. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties. The Partnership now owns and operates nine apartment properties one each in North Carolina, Texas, Colorado, Kansas and Kentucky, four in Florida and one multiple-use complex in Pennsylvania. Principles of Consolidation: The Partnership's consolidated financial statements include the accounts of CCIP Sterling, L.P., a Pennsylvania Limited Partnership, Kennedy Boulevard Associates II, L.P., Kennedy Boulevard Associates III, L.P., Kennedy Boulevard Associates IV, L.P., and Kennedy Boulevard GP I ("KBGP-I"), a Pennsylvania Partnership. Each of the entities above except KBGP-I are Pennsylvania limited partnerships, and the general partners of each of these affiliated limited and general partnerships are limited liability corporations of which the Partnership is the sole member. Therefore, the Partnership controls these affiliated limited and general partnerships, and consolidation is required. CCIP Sterling, L.P. holds title to The Sterling Apartment Home and Commerce Center ("the Sterling"). All interpartnership transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain reclassifications have been made to the 2001 and 2002 information to conform to the 2003 presentation. Allocation of Profits, Gains, and Losses: The Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Net Income Per Limited Partnership Unit: Net income per Limited Partnership Unit ("Unit") is computed by dividing net income allocated to the Limited Partners by the number of Units outstanding at the beginning of the year. Per Unit information has been computed based on 199,043.2 Units for 2003 and 2002 and 199,045.2 Units for 2001 (see "Note I" for further information). Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $2,246,000 and $3,098,000 at December 31, 2003 and 2002, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Restricted Escrows: At the time of the 1995 refinancing of The Loft, approximately $60,000 of the proceeds were designated for a Replacement Reserve Fund for certain capital replacements at the property. Additionally, monthly deposits are requiredpursuant to the mortgage agreement. At December 31, 2003 and 2002, the balance in this reserve was approximately $159,000 and $211,000, respectively. In conjunction with the financing of the Sterling in September 1998, the Partnership is required to make monthly deposits of approximately $17,000 with the mortgage company to establish and maintain a Replacement Reserve Fund designated for repairs and replacements at the property. As of December 31, 2003 and 2002, the balance was approximately $470,000 and $384,000, respectively. At the time of refinancing of The Knolls in September 2000, approximately $505,000 of the proceeds were designated for a replacement reserve fund for certain capital replacements. At December 31, 2003 and 2002 the balance in the replacement reserve fund was approximately $293,000 and $519,000, respectively. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment and commercial properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 years. Loan Costs: As of December 31, 2003 and 2002, loan costs of approximately $569,000 for both years less accumulated amortization of approximately $332,000 and $275,000 respectively, are included in other assets. These costs are amortized by the straight-line method over the life of the loans. Amortization expense was approximately $57,000 and $56,000 for the years ended December 31, 2003 and 2002, respectively, and is included in interest expense. Amortization expense is expected to be approximately $57,000 for each of the years 2004 and 2005 and approximately $45,000 for each of the years 2006 and 2007 and approximately $33,000 for 2008. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on rental payments. Investment Properties: Investment properties consist of nine apartment complexes and one multiple-use building consisting of apartment units and commercial space and are stated at cost or at fair market value as determined at the time of the foreclosures in 2002 and 2003. Acquisition fees are capitalized as a cost of real estate. Expenditures in excess of $250 that maintain an existing asset which has a useful life of more than one year are capitalized as capital replacement expenditures and depreciated over the estimated useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of properties that have been permanently impaired have been written down to appraised value. No adjustments for impairment of value were recorded in the years ended December 31, 2003, 2002 or 2001. During 2001, AIMCO, an affiliate of the General Partner, commissioned a project to study process improvement ideas to reduce operating costs. The result of the study led to a re-engineering of business processes and eventual redeployment of personnel and related capital spending. The implementation of these plans during 2002, accounted for as a change in accounting estimate, resulted in a refinement of the Partnership's process for capitalizing certain direct and indirect project costs (principally payroll related costs) and increased capitalization of such costs by approximately $109,000 in 2002 compared to 2001. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The Partnership believes that the carrying amount of its long-term debt approximates its fair market value. The mortgages on the foreclosed properties were recorded at their fair market value at the date of foreclosure. The carrying amount of the Partnership's investment in the Master Loan at December 31, 2002 approximates fair value due to the fact that it has been valued based on the fair value of the underlying collateral. Investment in Master Loan: In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", the allowance for credit losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with SFAS No. 13, "Accounting for Leases". Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the leases. For all other leases, minimum rents are recognized over the terms of the leases and the Partnership fully reserves all balances outstanding over thirty days. The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. In addition, the General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. Lease Commissions: Lease commissions are capitalized and included in other assets and are being amortized using the straight-line method over the life of the applicable lease. At December 31, 2003 and 2002, capitalized lease commissions totaled approximately $379,000 and $231,000, respectively, with accumulated amortization of approximately $154,000 and $175,000, respectively. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. See "Note K" for detailed disclosure of the Partnership's segments. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising costs of approximately $273,000, $113,000 and $67,000 for the years ended December 31, 2003, 2002 and 2001, respectively, were charged to operating expense. Note B - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable income (in thousands, except per unit data): 2003 2002 2001 Net income as reported $ 2,051 $ 3,318 $ 7,078 Add (deduct): Deferred revenue and other liabilities 67 1,150 (157) Depreciation differences 306 460 398 Accrued expenses 22 (9) 7 Interest income 1,975 3,207 (3,280) Differences in valuation allowances -- -- (3,176) Gain on foreclosure (839) (3,243) -- Other 456 1,371 90 Federal taxable income $ 4,038 $ 6,254 $ 960 Federal taxable income per limited partnership unit $ 20.08 $ 31.10 $ 4.78 The following is reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): December 31, 2003 2002 Net assets as reported $ 26,710 $ 28,083 Land and buildings 410 930 Accumulated depreciation 4,050 3,763 Syndication fees 22,500 22,500 Other 4,466 2,255 Net assets - Federal tax basis $ 58,136 $ 57,531 Note C - Net Investment in Master Loan The Partnership was initially formed for the benefit of its limited partners to lend funds to Consolidated Capital Equity Partners ("CCEP"), a California general partnership. The general partner of CCEP is an affiliate of the General Partner. The Partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). The loans were made to, and the real properties that secured the Master Loan were purchased and owned by, CCEP. For the years ended December 31, 2002 and 2001 the Partnership recorded approximately $386,000 and $3,280,000, respectively, of interest income based upon "Excess Cash Flow" (as defined in the terms of the New Master Loan Agreement) generated by CCEP and paid to the Partnership. No excess cash flow was generated or paid by CCEP during the year ended December 31, 2003. The fair value of all of the collateral properties which on a combined basis secured the Master Loan, was determined using the net operating income of the collateral properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors, or by obtaining an appraisal by an independent third party. The approximate reduction of $3,176,000 in the provision for impairment loss recognized during the year ended December 31, 2001 was attributed to an increase in the net realizable value of the collateral properties and to a payment of principal on the Master Loan from the sales proceeds of Magnolia Trace in January 2001. There was no change in the provision for impairment loss during the years ended December 31, 2003 and 2002. The Master Loan matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralized the Master Loan or extending the terms of the Master Loan. The General Partner decided to foreclose on the properties that collateralize the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one of the properties held by CCEP was sold in December 2002. On November 10, 2003 the Partnership acquired the remaining four properties held by CCEP through a foreclosure sale. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, during the years ended December 2003 and 2002, the Partnership assumed responsibility for the operations of such properties. The results of operations of the foreclosed properties are reflected in the accompanying consolidated statements of operations for the period ended September 1, 2002 through December 31, 2003 and November 10, 2003 through December 31, 2003, respectively. The following table sets forth the Partnership's non-cash activities during the years ended December 31, 2003 and 2002 with respect to the foreclosures of Plantation Gardens, Palm Lake, The Dunes and Regency Oak Apartments in 2003 and Silverado, The Knolls, Indian Creek Village and Tates Creek Village Apartments in 2002, respectively: 2003 2002 Investment properties (a) $ 38,901 $ 38,273 Investments in affiliated partnerships (b) -- 918 Mortgage notes payable (c) (23,828) (26,787) Master loan, net of allowance (d) (14,129) (10,567) Other assets received, net of other liabilities assumed (105) (6) Gain on foreclosure of real estate $ 839 $ 1,831 (a) Amount represents the estimated fair value of the properties. The fair value was determined by appraisals obtained in September 2000 from an independent third party which have been updated by management using the net operating income of all of the collateral properties capitalized at a rate deemed reasonable for the type of property and adjusted by management for current market conditions, physical condition of each respective property, and other factors. (b) See "Note H". (c) Amount represents the present value of the mortgages encumbering the investment properties acquired through foreclosure, discounted at a rate currently available to the Partnership. (d) Amount represents the amount of the Master Loan associated with the four properties acquired. In November 2003, the Partnership acquired the four remaining properties held by CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes Apartments, and Palm Lake Apartments. These properties were sold at a foreclosure sale due to CCEP's inability to repay the Master Loan and accrued interest. An affiliate of the General Partner advanced the Partnership approximately $31,278,000 in order to purchase these properties at the sale. Approximately $523,000 was retained by the court for its costs and was capitalized as acquisition costs by the Partnership and will be amortized over the estimated useful lives of the properties. The advance bore interest at prime plus 2% and the Partnership paid approximately $114,000 in interest expense for the period the loan was outstanding during 2003. The Partnership acquired the properties previously held by CCEP subject to the existing liens on the properties including the first mortgage loans. As a result of the acquisition of these remaining four properties that were held by CCEP, the Partnership recognized a gain on foreclosure of approximately $839,000 which was the excess of the actual fair market value of the properties at the time of the foreclosure sale over the value of the Master Loan balance collateralized by the properties. CCIP intends to continue to operate these properties as residential apartment complexes. Proforma results of operations assuming the foreclosure of Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments occurred at January 1, 2001 and assuming the acquisition of Plantation Gardens, Palm Lake, The Dunes and Regency Oaks Apartments occurred at January 1, 2002 are as follows (in thousands, except per unit data): Years Ended December 31, 2003 2002 2001 Revenues $ 26,191 $ 27,472 $ 26,309 Expenses (22,512) (23,597) (18,135) Net income 3,679 3,875 8,174 Net income per limited partnership unit $ 18.30 $ 19.27 $ 40.66 Prior to the acquisition of the four remaining properties held by CCEP at a foreclosure sale, the principal balance of the Master Loan due to the Partnership totaled approximately $14,144,000 at December 31, 2002. This amount represented the fair market value of the remaining properties held by CCEP at December 31, 2002, less the net liabilities owed by the properties. Interest, calculated on the accrual basis, due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements due to the impairment of the loan, totaled approximately $1,520,000, $462,000, and $38,763,000 for the years ended December 31, 2003, 2002, and 2001 respectively. Interest income is recognized on the cash basis as required by SFAS 114. At December 31, 2003 and December 31, 2002, such cumulative unrecognized interest totaled approximately $1,982,000 and $462,000 and was not included in the balance of the investment in Master Loan. The cumulative unrecognized interest owed on the Master Loan was forgiven by the Partnership when the properties were foreclosed on or acquired at a foreclosure sale during the years ended December 31, 2003 and 2002. During the years ended December 31, 2003, 2002 and 2001, the Partnership made no advances to CCEP on the Master Loan. During the years ended December 31, 2003, 2002 and 2001, the Partnership received approximately $15,000, $1,719,000 and $7,801,000 as principal payments on the Master Loan from CCEP. Approximately $88,000 and $357,000 was received during the years ended December 31, 2002 and 2001, respectively, representing cash received from distributions from three affiliated partnerships which were required to be transferred to the Partnership per the Master Loan Agreement. In addition, during the years ended December 31, 2003 and 2002, approximately $15,000 and $1,631,000 was received representing net proceeds from the sale of Society Park in December 2002. During the year ended December 31, 2001, approximately $6,019,000 was received representing net proceeds from the sale of Magnolia Trace and approximately $1,425,000 was received representing additional proceeds received for the refinancing of the mortgages encumbering nine of the investment properties in 2000. The investment in the Master Loan consists of the following: As of December 31, 2003 2002 (in thousands) Master Loan funds advanced at beginning of year $ 14,144 $ 26,430 Foreclosure write off (14,129) (10,567) Principal receipts on Master Loan (15) (1,719) Master Loan funds advanced at end of year $ -- $ 14,144 Note D - Mortgage Notes Payable The principal terms of mortgage notes payable are as follows: Principal Balance At Monthly Monthly December 31, Payment Balance (including Interest Maturity Due At Property 2003 2002 interest) Rate Date Maturity (in thousands) (in thousands) (in thousands) The Loft Apartments 1st mortgage $ 4,064 $ 4,139 $ 30 6.95% 12/01/05 $ 3,903 The Sterling Apartment Homes and Commerce Center 1st mortgage 21,654 21,972 149 6.77% 10/01/08 19,975 Silverado Apartments 1st mortgage 3,264 3,360 29 7.87% 11/01/10 2,434 The Knolls Apartments 1st mortgage 9,180 9,433 81 7.78% 03/01/10 7,105 Indian Creek Village Apartments 1st mortgage 8,117 8,340 72 7.83% 01/01/10 6,351 Tates Creek Village Apartments 1st mortgage 3,909 4,017 35 7.78% 04/01/10 3,017 Plantation Gardens Apartments 1st mortgage 8,999 -- 80 7.83% 03/01/10 6,972 Palm Lake Apartments 1st mortgage 2,777 -- 25 7.86% 02/01/10 2,158 The Dunes Apartments 1st mortgage 3,812 -- 34 7.81% 02/01/10 2,960 Regency Oaks Apartments 1st mortgage 7,078 -- 63 7.80% 02/01/10 5,494 $72,854 $ 51,261 Unamortized mortgage loan premium 2,341 1,388 $75,195 $ 52,649 $598 $60,369 The mortgage notes payable are non-recourse and are secured by pledge of the respective properties and by pledge of revenues from the respective properties. The notes require prepayment penalties if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. The carrying amount of the Partnership's long term debt approximates its fair value due to the fact that the mortgages on the foreclosed properties were recorded at their fair value. The fair value of the mortgages was determined based upon the incremental borrowing rate available to the Partnership at the time of foreclosure. The mortgage premium of approximately $2,341,000 is net of accumulated amortization of approximately $191,000. The mortgage premiums are being amortized over the remaining lives of the loans. Amortization expense is included in interest expense on the consolidated statements of operations. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2003, are as follows (in thousands): Mortgage Note 2004 $ 1,763 2005 5,835 2006 1,999 2007 2,157 2008 22,192 Thereafter 38,908 Total $72,854 Note E - Related Party Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement 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 $948,000, $695,000 and $640,000 for the years ended December 31, 2003, 2002 and 2001, respectively, which is included in operating expense. Approximately $34,000 was payable to the General Partner at December 31, 2003 and is included in "Due to affiliates" on the accompanying consolidated balance sheet. An affiliate of the General Partner charged reimbursement of accountable administrative expenses amounting to approximately $717,000, $454,000 and $332,000 for the years ended December 31, 2003, 2002 and 2001, respectively which is included in general and administrative expenses and investment properties. Approximately $221,000 was payable at December 31, 2003 and is included in "Due to Affiliates" on the accompanying balance sheet. For the years ended December 31, 2003 and 2002, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursement of accountable administrative expenses was adjusted based on actual costs (see "Note L"). Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $45,000 and $7,000 for the years ended December 31, 2003 and 2002, respectively. There were no construction management fees for the year ended December 31, 2001. The construction management fees are calculated based on a percentage of current year additions to investment properties. In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $220,000 for expenses at four of the Partnership's properties during the year ended December 31, 2003. This advance was repaid in full prior to December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to less than $1,000 for the year ended December 31, 2003. In November 2003, an affiliate of the General Partner advanced the Partnership approximately $31,278,000. The advance was repaid prior to the year ended December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to approximately $114,000 during the year ended December 31, 2003. There were no loans from the General Partner or associated interest expense during the years ended December 31, 2002 and 2001. 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 the years ended December 31, 2003 and 2002, the Partnership was charged by AIMCO and its affiliates approximately $212,000 and $256,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units (the "Units") in the Partnership representing 65.16% of the outstanding Units at December 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard on February 20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all units for a purchase price of $239.13 per Unit. The tender offer will expire on April 9, 2004. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 65.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all 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. Note F - Investment Properties and Accumulated Depreciation Investment Properties Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) The Loft Apartments $ 4,064 $ 1,053 $ 4,147 $ 2,476 The Sterling Apt Homes and Commerce Center 21,654 2,567 12,341 21,518 Silverado Apartments 3,264 966 3,807 90 The Knolls Apartments 9,180 4,318 10,682 546 Indian Creek Village 8,117 3,975 8,225 177 Apartments Tates Creek Village 3,909 1,449 4,851 158 Apartments Plantation Gardens Apartments 8,999 4,046 15,217 19 Palm Lake Apartments 2,777 989 3,369 6 The Dunes Apartments 3,812 1,449 5,427 6 Regency Oaks Apartments 7,078 2,024 6,902 58 Total $72,854 $22,836 $74,968 $ 25,054 Gross Amount At Which Carried At December 31, 2003 (in thousands) Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years (in thousands) The Loft $ 997 $ 6,679 $ 7,676 $ 4,652 11/19/90 5-30 The Sterling 2,567 33,859 36,426 16,849 12/01/95 5-30 Silverado 966 3,897 4,863 198 08/09/02 5-30 The Knolls 4,318 11,228 15,546 617 08/09/02 5-30 Indian Creek Village 3,975 8,402 12,377 482 08/09/02 5-30 Tates Creek Village 1,449 5,009 6,458 284 08/13/02 5-30 Plantation Gardens 4,046 15,236 19,282 43 11/10/03 5-30 Palm Lake 989 3,375 4,364 13 11/10/03 5-30 The Dunes 1,449 5,433 6,882 19 11/10/03 5-30 Regency Oaks 2,024 6,960 8,984 37 11/10/03 5-30 Totals $22,780 $100,078 $122,858 $23,194 Reconciliation of "investment properties and accumulated depreciation": Years Ended December 31, 2003 2002 (in thousands) Real Estate Balance, real estate at beginning of year $82,077 $43,222 Acquisition of properties through Foreclosure 39,424 38,273 Property improvements and Replacements 1,472 582 Property disposition (115) -- Balance, real estate at end of year $122,858 $82,077 Accumulated Depreciation Balance at beginning of year $ 19,158 $15,969 Additions charged to expense 4,056 3,189 Property dispositions (20) -- Balance at end of year $ 23,194 $19,158 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2003 and 2002, is approximately $123,268,000 and $83,007,000, respectively. Accumulated depreciation for Federal income tax purposes at December 31, 2003 and 2002 is approximately $19,144,000, and $15,395,000, respectively. Note G - Commercial Leases In December 2001, the Partnership's most significant commercial tenant at The Sterling Commerce Center vacated its space which represented 30.58% of the leaseable commercial space. The Partnership filed a lawsuit against such tenant seeking monetary damages for unpaid rent, including rent which had been abated in favor of the tenant completing significant improvements to its space. The Partnership accepted a settlement whereby the tenant paid $180,000 in satisfaction of all unpaid rent amounts due and the Partnership accepted possession of the improvements completed by the tenant which were valued at approximately $498,000. The settlement amount was paid in 2002. Beginning in 2002, these improvements are being depreciated over their remaining estimated useful lives. As a result of the tenant vacating the space, the Partnership expensed approximately $191,000 in unamortized lease commissions during the year ending December 31, 2001. Rental income on the commercial property leases is recognized by the straight-line method over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): Year Ending December 31, 2004 $ 1,041 2005 887 2006 737 2007 551 2008 394 2009 320 2010 242 $ 4,172 There is no assurance that this rental income will continue at the same level when the current leases expire. Note H - Investment in Affiliated Partnerships The Partnership assumed investments in the following affiliated partnerships during the year ended December 31, 2003. Investment Ownership At December 31, Partnership Type of Ownership Percentage 2003 2002 Consolidated Capital Non-controlling Growth Fund General Partner 0.40% $ 14 $ 47 Consolidated Capital Non-controlling Properties III General Partner 1.85% 30 27 Consolidated Capital Non-controlling Properties IV General Partner 1.85% 948 820 $ 992 $ 894 These investments were assumed during the foreclosure of investment properties from CCEP (see "Note C") and are accounted for on the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During the years ended December 31, 2003 and 2002, the Partnership received approximately $1,048,000 and $23,000, respectively, in distributions from two of the partnerships. Approximately $1,015,000 of the distributions related to the sale of three of the properties in Consolidated Capital Growth Fund. Of this amount, approximately $984,000 was recognized as equity in income from investment once the investment balance allocated to those properties had been reduced to zero. The Partnership also recognized equity in income from investment of approximately $162,000 which included the allocation of gain from the sale of a property in Consolidated Capital Properties IV. There was no distribution associated with this sale. At December 31, 2003, the unamortized excess of the Partnership's investment over the historical cost of the underlying net assets of the investees was approximately $6,369,000, which has been attributed to the fair values of the investees underlying properties and is being depreciated over their useful lives. The aggregate market value of the Partnership's investments is approximately $661,000 at December 31, 2003. Note I - Abandonment of Limited Partnership Units During the year ended December 31, 2002, the number of Limited Partnership Units decreased by 2 units due to limited partners abandoning their units. In abandoning his or her Limited Partnership Unit(s), a limited partner relinquishes all right, title, and interest in the partnership as of the date of abandonment. However, the limited partner is allocated his or her share of net income or loss for that year. The income or loss per Limited Partnership Unit in the accompanying consolidated statements of operations is calculated based on the number of units outstanding at the beginning of the year. There were no such abandonments in 2003 or 2001. Note J - Casualty Gain During the year ended December 31, 2003, there was a casualty gain of approximately $25,000 recorded at The Sterling Apartment Homes related to an electrical fire that damaged two units. This gain was the result of the receipt of insurance proceeds of approximately $73,000, net of the write off of undepreciated fixed assets of approximately $48,000. During the year ended December 31, 2003, there was a casualty loss of approximately $8,000 recorded at Tates Creek Village Apartments related to an ice storm which resulted in major landscaping damage. The loss was the result of the receipt of insurance proceeds of approximately $39,000, net of the write off of undepreciated fixed assets of approximately $47,000. Note K - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has two reportable segments: residential properties and commercial property. The Partnership's property segments consist of nine apartment complexes one each in North Carolina, Texas, Colorado, Kansas, and Kentucky, four in Florida, and one multiple use facility consisting of apartment units and commercial space in Pennsylvania. The Partnership rents apartment units to tenants for terms that are typically less than twelve months. The commercial property leases space to various medical offices, career service facilities, and retail shops at terms ranging from month to month to seven years. Measurement of segment profit and loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are business units (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 years ending December 31, 2003, 2002 and 2001 is shown in the tables below (in thousands). The "Other" Column includes partnership administration related items and income and expense not allocated to reportable segments. 2003 Residential Commercial Other Totals Rental income $16,092 $ 1,117 $ -- $17,209 Other income 1,281 115 2 1,398 Equity in income of investment -- -- 1,146 1,146 Interest expense 3,545 225 114 3,884 Depreciation 3,888 168 -- 4,056 General and administrative expenses -- -- 1,151 1,151 Gain on foreclosure of real estate -- -- 839 839 Segment profit (loss) 1,824 (495) 722 2,051 Total assets 102,425 1,121 1,852 105,398 Capital expenditures for investment properties 1,195 277 -- 1,472 2002 Residential Commercial Other Totals Rental income $12,123 $ 1,109 $ -- $13,232 Other income 906 118 4 1,028 Interest expense 2,254 228 -- 2,482 Depreciation 3,012 177 -- 3,189 General and administrative expenses -- -- 836 836 Interest income on investment in Master Loan -- -- 386 386 Gain on foreclosure of real estate -- -- 1,831 1,831 Segment profit (loss) 2,257 (324) 1,385 3,318 Total assets 65,550 862 16,919 83,331 Capital expenditures for investment Properties 560 22 -- 582 2001 Residential Commercial Other Totals Rental income $ 9,782 $ 1,523 $ -- $11,305 Other income 597 290 12 899 Interest expense 1,659 230 -- 1,889 Depreciation 2,890 90 -- 2,980 General and administrative expenses -- -- 720 720 Interest income on investment in Master Loan -- -- 3,280 3,280 Reduction of provision for impairment Loss -- -- 3,176 3,176 Segment profit 1,285 49 5,744 7,078 Total assets 27,896 1,213 26,980 56,089 Capital expenditures for investment properties 372 524 -- 896 Note L - Fourth-Quarter Adjustment The Partnership's policy is to record management reimbursements to the General Partner as allowed under the Partnership Agreement on a quarterly basis, using estimated financial information furnished by an affiliate of the General Partner. For the first three quarters of 2003, these reimbursements of accountable administrative expenses were based on estimated amounts. During the fourth quarter of 2003, the Partnership recorded an adjustment to management reimbursements to the General Partner of approximately $221,000 due to a difference in the estimated costs and the actual costs incurred. The actual management reimbursements to the General Partner for the year ended December 31, 2003 were approximately $672,000, as compared to the estimated management reimbursements to the General Partner for the nine months ended September 30, 2003 of approximately $337,000. Note M - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, 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 Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. 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 at least one round of tender offers 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 provided 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. On June 13, 2003, the Court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the Court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the Settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the Court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the Court heard oral argument on the motions and denied them both in their entirety. On January 28, 2004, Objector filed his opening brief in his pending appeal. The General Partner is currently scheduled to file a brief in support of the order approving settlement and entering judgment thereto by April 23, 2004. On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner, was served with a Complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The Complaint is styled as a Collective Action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the Complaint alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call". The Complaint also attempts to certify a subclass for salaried service directors who are challenging their classification as exempt from the overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to the Complaint denying the substantive allegations. Discovery is currently underway. 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 matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business. Note N - Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations for the Partnership (in thousands, except per unit data): 1st 2nd 3rd 4th 2003 Quarter Quarter Quarter Quarter Total Total revenues $4,372 $4,481 $4,630 $5,124 $18,607 Total expenses 4,545 4,513 4,337 5,146 18,541 (Loss) income from continuing Operations (173) (32) 293 (22) 66 Gain on foreclosure of real estate -- -- -- 839 839 Equity in income of investment 350 -- 748 48 1,146 Net income (loss) $ 177 $ (32) $ 1,041 $ 865 $ 2,051 Net income allocated to General Partner (1%) $ 2 $ -- $ 10 $ 9 $ 21 Net income (loss) allocated to Limited Partners (99%) 175 (32) 1,031 856 2,030 $ 177 $ (32) $ 1,041 $ 865 $ 2,051 Net income (loss) per limited partnership unit $ 0.88 $ (0.16) $ 5.18 $ 4.30 $ 10.20 Distributions per limited partnership unit $ 9.99 $ 1.75 $ 5.37 $ -- $ 17.11 1st 2nd 3rd 4th 2002 Quarter Quarter Quarter Quarter Total Total revenues $2,929 $3,249 $3,883 $4,585 $14,646 Total expenses 2,787 2,810 3,307 4,255 13,159 Income from continuing operations 142 439 576 330 1,487 Gain on foreclosure of real estate -- -- 1,831 -- 1,831 Net income $ 142 $ 439 $ 2,407 $ 330 $ 3,318 Net income allocated to General Partner (1%) $ 1 $ 4 $ 24 $ 4 $ 33 Net income allocated to Limited Partners (99%) 141 435 2,383 326 3,285 $ 142 $ 439 $ 2,407 $ 330 $ 3,318 Net income per limited partnership unit $ 0.71 $ 2.19 $ 11.97 $ 1.63 $ 16.50 Distributions per limited partnership unit $ 2.27 $ 4.64 $ 4.70 $ 6.18 $ 17.79 1st 2nd 3rd 4th 2001 Quarter Quarter Quarter Quarter Total Revenues: Rental, interest and other income $ 3,075 $ 3,030 $ 3,044 $ 3,055 $ 12,204 Interest income on investment in Master Loan 1,900 804 576 -- 3,280 Reduction of provision for impairment loss 3,176 -- -- -- 3,176 Total revenues 8,151 3,834 3,620 3,055 18,660 Total expenses 2,945 3,126 2,725 2,786 11,582 Net income $ 5,206 $ 708 $ 895 $ 269 $ 7,078 Net income allocated to General Partner (1%) $ 52 $ 7 $ 9 $ 3 $ 71 Net income allocated to Limited Partners (99%) 5,154 701 886 266 7,007 $ 5,206 $ 708 $ 895 $ 269 $ 7,078 Net income per limited partnership unit $ 25.89 $ 3.52 $ 4.45 $ 1.34 $ 35.20 Distributions per limited partnership unit $ 39.02 $ 16.53 $ 18.65 $ 4.63 $ 78.83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, 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 concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART III Item 10. Directors, Executive Officers of the General Partner of the Partnership The names and ages of, as well as the positions and offices held by, the present officers and directors of ConCap Equities, Inc. ("CEI") the Partnership's General Partner as of December 31, 2003, their ages and the nature of all positions with CEI presently held by them are as follows: Peter K. Kompaniez 59 Director Martha L. Long 44 Director and Senior Vice President Harry G. Alcock 41 Executive Vice President Miles Cortez 60 Executive Vice President, General Counsel and Secretary Patti K. Fielding 40 Executive Vice President Paul J. McAuliffe 47 Executive Vice President and Chief Financial Officer Thomas M. Herzog 41 Senior Vice President and Chief Accounting Officer Peter K. Kompaniez has been Director of the General Partner since February 2004. Mr. Kompaniez has been Vice Chairman of the Board of Directors of AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez has also served as Chief Operating Officer of NHP Incorporated after it was acquired by AIMCO in December 1997. Effective April 1, 2004, Mr. Kompaniez resigned as President of AIMCO. Mr. Kompaniez will continue in his role as Director of the General Partner and Vice Chairman of AIMCO's Board and will serve AIMCO on a variety of special and ongoing projects in an operating role. Martha L. Long has been a Director and Senior Vice President of the General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed Executive Vice President of the General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President-Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding is responsible for securities and debt financing and the treasury department. Ms. Fielding joined AIMCO in February 1997 and served as Vice President - Tenders, Securities and Debt until January 2000. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000, including a two-year assignment in the real estate national office. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 11. Executive Compensation No remuneration was paid to the General Partner nor its director or officers. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners Except as noted below, no persons or entity is known by the General Partner to own beneficially more than 5% of the outstanding Units of the Partnership: Name and Address Number of Units Percentage AIMCO IPLP, L.P. (an affiliate of AIMCO) 50,572.4 25.41% Reedy River Properties, L.L.C. (an affiliate of AIMCO) 28,832.5 14.48% Cooper River Properties, L.L.C. (an affiliate of AIMCO) 11,365.6 5.71% AIMCO Properties, L.P. (an affiliate of AIMCO) 38,924.6 19.56% Reedy River Properties, Cooper River Properties LLC and AIMCO IPLP, L.P. are indirectly ultimately owned by AIMCO. Their business addresses are 55 Beattie Place, Greenville, SC 20602. AIMCO Properties, LP is ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. (b) Beneficial Owners of Management Except as described in Item 12(a) above, neither CEI nor any of the directors, officers or associates of CEI own any Units of the Partnership of record or beneficially. (c) Changes in Control Beneficial Owners of CEI As of December 31, 2003, the following entity was known to CEI to be the beneficial owner of more than 5% of its common stock: NUMBER OF PERCENT NAME AND ADDRESS UNITS OF TOTAL Insignia Properties Trust 55 Beattie Place P.O. Box 1089 Greenville, SC 29602 100,000 100% Effective February 26, 1999, Insignia Properties Trust merged into AIMCO with AIMCO being the surviving corporation. As a result, AIMCO ultimately acquired a 100% interest in Insignia Properties Trust. Item 13. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement 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 $948,000, $695,000 and $640,000 for the years ended December 31, 2003, 2002 and 2001, respectively, which is included in operating expense. Approximately $34,000 was payable to the General Partner at December 31, 2003 and is included in "Due to affiliates" on the accompanying consolidated balance sheet. An affiliate of the General Partner charged reimbursement of accountable administrative expenses amounting to approximately $717,000, $454,000 and $332,000 for the years ended December 31, 2003, 2002 and 2001, respectively which is included in general and administrative expenses and investment properties. Approximately $221,000 was payable at December 31, 2003 and is included in "Due to Affiliates" on the accompanying balance sheet. For the years ended December 31, 2003 and 2002, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursement of accountable administrative expenses was adjusted based on actual costs (see "Note L"). Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $45,000 and $7,000 for the years ended December 31, 2003 and 2002, respectively. There were no construction management fees for the year ended December 31, 2001. The construction management fees are calculated based on a percentage of current year additions to investment properties. In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $220,000 for expenses at four of the Partnership's properties during the year ended December 31, 2003. This advance was repaid in full prior to December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to less than $1,000 for the year ended December 31, 2003. In November 2003, an affiliate of the General Partner advanced the Partnership approximately $31,278,000. The advance was repaid prior to the year ended December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to approximately $114,000 during the year ended December 31, 2003. There were no loans from the General Partner or associated interest expense during the years ended December 31, 2002 and 2001. 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 the years ended December 31, 2003 and 2002, the Partnership was charged by AIMCO and its affiliates approximately $212,000 and $256,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units (the "Units") in the Partnership representing 65.16% of the outstanding Units at December 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard on February 20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all units for a purchase price of $239.13 per Unit. The tender offer will expire on April 9, 2004. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 65.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all 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. PART IV Item 14. Principal Accounting Fees and Services The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2004. Audit Fees. The Partnership paid to Ernst & Young LLP audit fees of approximately $62,000 and $58,000 for 2003 and 2002, respectively. Tax Fees. The Partnership paid to Ernst & Young LLP fees for tax services for 2003 and 2002 of approximately $32,000 and $20,000, respectively. Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 1. Schedules All schedules are omitted because they are not required, are not applicable or the financial information is included in the financial statements or notes thereto. 2. Exhibits (a) See Exhibit Index attached. (b) Reports on Form 8-K filed during the fourth quarter of 2003: None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES By: ConCap Equities, Inc. General Partner By: /s/Martha L. Long Martha L. Long Senior Vice President By: /s/Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Accounting Officer Date: March 30, 2004 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Peter K. Kompaniez Director Date: March 30, 2004 Peter K. Kompaniez /s/Martha L. Long Director and Senior Vice Date: March 30, 2004 Martha L. Long President /s/Thomas M. Herzog Senior Vice President Date: March 30, 2004 Thomas M. Herzog and Chief Accounting Officer EXHIBIT INDEX S-K Reference Document Description 3 Certificates of Limited Partnership, as amended to date. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991 ("1991 Annual Report")). 10.1 Amended Loan Agreement dated November 15, 1990 (the "Effective Date"), by and between the Partnership and EP (Incorporated by reference to the Annual Report of Form 10-K for the year ended December 31, 1990 ("1990 Annual Report")). 10.2 Assumption Agreement as of the Effective Date, by and between EP and CCEP (Incorporated by reference to the 1990 Annual Report). 10.3 Assignment of Claims as of the Effective Date, by and between the Partnership and EP (Incorporated by reference to the 1990 Annual Report). 10.5 Bill of Sale and Assignment dated October 23, 1990, by and between CCEP and ConCap Services Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.20 Mortgage and Security Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.21 Repair Escrow Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.22 Replacement Reserve and Security Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.23 Third Amendment to the Limited Partnership Agreement filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference. 10.24 Fourth Amendment to the Limited Partnership Agreement filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference. 10.28 Form of Amended Order Setting Foreclosure Sale Date pursuant to amending the foreclosure date filed on September 25, 2003 (Schedules and supplemental materials to this exhibit filed herewith have been omitted but will be provided to the Securities and Exchange Commission upon request).* 10.29 Form of Certificate of Sale as to Property "1" pursuant to sale of Palm Lake Apartments to CCIP Palm Lake, L.L.C. filed October 28, 2003.* 10.30 Form of Certificate of Sale as to Property "2" pursuant to sale of Regency Oaks Apartments to CCIP Regency Oaks, L.L.C. filed October 28, 2003.* 10.31 Form of Certificate of Sale as to Property "3" pursuant to sale of The Dunes Apartments (formerly known as Society Park East Apartments) to CCIP Society Park East, L.L.C. filed October 28, 2003.* 10.32 Form of Certificate of Sale as to Property "4" pursuant to sale of Plantation Gardens Apartments to CCIP Plantation Gardens, L.L.C. filed October 28, 2003.* 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Filed as exhibits 10.28 through 10.31 in the Registrant's Quarterly Form 10-Q for the quarter ended September 30, 2003 incorporated herein by reference. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this annual report on Form 10-K of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/Martha L. Long Martha L. Long Senior Vice President of ConCap Equities, Inc., equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Thomas M. Herzog, certify that: 1. I have reviewed this annual report on Form 10-K of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Accounting Officer of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 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 Annual Report on Form 10-K of Consolidated Capital Institutional Properties (the "Partnership"), for the year end December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Thomas M. Herzog, 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/Martha L. Long Name: Martha L. Long Date: March 30, 2004 /s/Thomas M. Herzog Name: Thomas M. Herzog Date: March 30, 2004 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.