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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
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(1) Title of each class of securities to which transaction
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
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[ ] Amount previously paid:
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[ ] Date Filed:
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CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
COLORADO CENTER, TOWER TWO
2000 SOUTH COLORADO BOULEVARD, SUITE 2-1000
DENVER, COLORADO 80222
CONSENT SOLICITATION STATEMENT
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This Consent Statement is being furnished to limited partners (the
"Limited Partners") of Consolidated Capital Institutional Properties/2, a
California limited partnership (the "Partnership"), in connection with the
approval of amendments (the "Amendments") to the Partnership's Agreement of
Limited Partnership in order to authorize the Partnership to, either directly or
indirectly through single-purpose wholly-owned entities, acquire, own, improve,
manage, operate, lease, finance, refinance, sell and exchange any real property
acquired as a result of any transaction under a Master Loan with Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") or any transaction involving
property acquired from CCEP/2 that is intended to qualify as a like-kind
exchange under Section 1031 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Amendments will also modify the Partnership's Agreement of
Limited Partnership in order to comply with certain United States Federal income
tax requirements, without affecting distributions and allocations of the
Partnership's income to the Limited Partners.
Currently, the Partnership's Agreement of Limited Partnership provides
that the Partnership can engage in the business of holding the Master Loan made
to CCEP/2, which is secured by mortgages, deeds of trust and related documents
encumbering the real property owned by CCEP/2, but it does not contain any
provisions relating to the ownership of real property. The General Partner
currently intends to have all the properties held by CCEP/2 transferred to the
Partnership (or single-purpose wholly-owned entities) through deeds in lieu of
foreclosure.
THE GENERAL PARTNER RECOMMENDS THAT LIMITED PARTNERS CONSENT TO THE
AMENDMENTS. The General Partner believes the Amendments provide significant
advantages to the Partnership. The Amendments will make it possible for the
Partnership to fully realize the benefits of its exercise of any of its remedies
under the Master Loan.
This consent solicitation is being made by ConCap Equities, Inc., the
general partner of the Partnership (the "General Partner" and, together with the
Limited Partners, the "Partners"), on behalf of the Partnership. This Consent
Solicitation Statement, and the accompanying form of Consent of Limited Partner
(the "Consent Form"), are first being mailed to Limited Partners on or about
July __, 2001.
THE AMENDMENTS WILL BECOME EFFECTIVE UPON THE GENERAL PARTNER RECEIVING
CONSENTS FROM LIMITED PARTNERS HOLDING MORE THAN 50% OF THE OUTSTANDING UNITS.
Affiliates of ConCap Equities, Inc., the General Partner, hold approximately
46.46% of the Units of Limited Partnership and will consent to the Amendments.
Accordingly, the consent of other Limited Partners holding at least 3.54% of the
Units will be needed to approve the Amendments.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS INFORMATION STATEMENT
FOR A DESCRIPTION OF THE RISK FACTORS THAT YOU SHOULD CONSIDER IN
CONNECTION WITH THE AMENDMENTS, INCLUDING THE FOLLOWING:
o The Amendments will enable the General Partner to acquire,
own, improve, manage, operate, lease, finance, sell and
exchange real property for the benefit of the Partnership
without approval of the Limited Partners.
o If the Partnership acquires real properties, the Partnership
will be subject to all the usual risks of owning real
property, such as general economic conditions, competition,
increases in operating costs, changes in governmental
regulations, tax laws and interest rates, and the relative
illiquidity of real estate investments.
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o If the Partnership acquires the properties, the properties may
generate unrelated business taxable income and may have other
adverse tax consequences for pension funds, Keogh plans,
individual retirement accounts and other tax-exempt Limited
Partners, including foreign Limited Partners.
o The General partner and its affiliates have substantial
conflicts of interest with respect to the Amendments.
Continuation of the Partnership will result in the General
Partner and its affiliates continuing to receive management
fees from the Partnership and CCEP/2.
If you have any questions or require any assistance in completing and
returning the Consent Form, please contact our Information Agent, River Oaks
Partnership Services, Inc., by mail at P.O. Box 2065, South Hackensack, New
Jersey 07606-2065; by overnight courier service at 111 Commerce Road, Carlstadt,
New Jersey 07072 -- Attention: Reorganization Department; by fax at (201)
896-0910 or by telephone at (888) 349-2005.
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RISK FACTORS
The following sets forth the risks and disadvantages to you of the
adoption of the Amendments. You should carefully review these risks:
EXPANSION OF PARTNERSHIP'S AUTHORITY. The Amendments will expand the
Partnership's powers and authority. The Partnership's Agreement of Limited
Partnership currently limits the Partnership's activities to owning the Master
Loan made to CCEP/2 and does not contain any provisions relating to the
ownership of real property. The Amendments will add provisions to the
Partnership Agreement specifically authorizing the Partnership to acquire, own,
improve, manage, operate, lease, finance, refinance, sell and exchange real
property it may acquire pursuant to the Master Loan, and engage in transactions
intended to qualify as like-kind exchanges under Section 1031 of the Internal
Revenue Code. If the Amendments are adopted, the expanded authority of the
Partnership could be exercised by the General Partner without further approval
of the Limited Partners.
RISKS OF OWNERSHIP OF REAL PROPERTY. Acquiring CCEP/2's properties will
change the nature of the Partnership from one holding the Master Loan, which is
secured by real property, to one directly holding real property. Upon acquiring
such properties, the Partnership will be subject to all the usual risks of
owning real property, which include:
o the general economic climate;
o competition from other apartment communities and alternative
housing;
o local conditions, such as an increase in unemployment or an
oversupply of apartments, that might adversely affect
apartment occupancy or rental rates;
o changes in governmental regulations and the related cost of
compliance;
o increases in operating costs (including real estate taxes) due
to inflation and other factors, which may not necessarily be
offset by increased rents;
o changes in tax laws and housing laws, including the enactment
of rent control laws or other laws regulating multifamily
housing;
o changes in interest rates and the availability of financing;
and
o the relative illiquidity of real estate investments.
CERTAIN TAX CONSIDERATIONS FOR TAX-EXEMPT LIMITED PARTNERS. It is
expected that the Partnership's acquisition and ownership of the properties held
by CCEP/2 will generate unrelated business taxable income and may have other
adverse tax consequences for pension funds, Keogh plans, individual retirement
accounts and other tax-exempt Limited Partners. Accordingly, such Limited
Partners are urged to consult their tax advisors concerning the possible United
States Federal, state and local consequences resulting from the Amendments and
the Partnership's acquisition of such properties.
CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF
PROPERTIES. The General Partner is proposing to continue to operate the
Partnership and has no intention to liquidate the Partnership at the present
time. Thus, the Amendments will reduce the likelihood that a Limited Partner
would receive the return of his or her investment in the Partnership through a
sale of any property owned by CCEP/2. The prospectus, pursuant to which the
Partnership sold its Units in 1983, indicated that it was expected that most
properties held by CCEP/2 would be sold within 12 years of their acquisition,
depending upon the then current real estate and money markets, economic climate
and income tax consequences to the Partners. It is not known when any property
which may be acquired by the Partnership from CCEP/2 may be sold. There may be
no way to liquidate your investment in the Partnership in the
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future until all properties securing the Master Loan. Upon obtaining any
property, the General Partner of the Partnership will consider whether a
property should be sold or otherwise disposed of after considering the relevant
factors, including prevailing economic conditions, availability of favorable
financing and tax considerations, with a view to achieving maximum capital
appreciation for the Partnership. In particular, the General Partner will
consider the local rental market, the potential for appreciation in the value of
each property and the tax consequences to the Partners of a sale of a property.
The General Partner cannot predict when any property will be sold or otherwise
disposed of. You may not be able to liquidate your investment in the Partnership
until the termination of the Partnership in December 31, 2013, or if the
termination date is extended, until such extended date.
SUBSTANTIAL CONFLICTS OF INTEREST OF GENERAL PARTNER; CONTINUATION OF
PAYMENT OF MANAGEMENT FEES. The General Partner and its affiliates have
substantial conflicts of interest with respect to the Amendments. Continuation
of the Partnership through its original termination date of 2013 will result in
the General Partner and its affiliates continuing to receive management fees
from the Partnership and CCEP/2. Some of these fees would not be paid if the
Partnership was liquidated earlier. The combined partnership and property
management fees (including reimbursement for expenses) paid to the General
Partner and its affiliates in 2000 were $444,000 by the Partnership and $772,000
by CCEP/2. There are no current plans by the Partnership to change the existing
management fee and expense reimbursement arrangements. With the Amendments,
management fees and expense reimbursements are expected to continue until the
Partnership is terminated.
LIKE-KIND EXCHANGES. The Amendments would allow the Partnership to
engage in like-kind exchanges of any real property acquired from CCEP/2 for
replacement property in transactions in which the General Partner intends to
meet the requirements of Section 1031 of the Internal Revenue Code. Any such
transaction could be subject to substantial risks, such as:
o the possibility that the like-kind exchange may not comply
with Section 1031, resulting in the Limited Partners'
inability to defer taxable gain on such exchange;
o the absence of any requirement to seek Limited Partners'
approval to engage in specific like-kind exchanges;
o the possibility that transfer, sales and/or other taxes may be
imposed on any like-kind exchange;
o the possibility that a like-kind replacement property may
generate income without the ability of depreciation and other
deductions to offset such income;
o the possibility that operations from any replacement property
may not generate any distributions; and
o the usual risk of owning and holding real property, such as
competition, the need to repair or upgrade the property, and
the desirability of the property to potential tenants.
NO ESTABLISHED MARKET. There is no established market for the Units.
There may be no way for you to liquidate your Units until all properties
currently held by CCEP/2 are sold and the Partnership liquidates.
CONSENTS REQUIRED; EFFECTIVENESS OF THE AMENDMENTS
Only Limited Partners may execute and deliver a Consent Form. The
Agreement of Limited Partnership requires that a majority in interest of the
Limited Partners approve the Amendments. Consequently, approval of the
Amendments requires the affirmative consent of Limited Partners who own more
than 50% of the Partnership's outstanding Units. As of May 31, 2001, there were
909,123.6 Units issued and outstanding. Accordingly, approval of the Amendments
will require the affirmative consent of Limited Partners who own at least
454,561.9 Units. Abstentions and broker non-votes will not be counted as
consents in favor of the Amendments since Limited Partners holding a majority of
the Units must affirmatively consent to the Amendments. The Amendments will
become effective when
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the General Partner has received valid consents from Limited Partners owning at
least 454,561.9 Units. Affiliates of the General Partner own 422,328.5 of the
Units and have indicated they will consent to the Amendments. As a result,
consents of Limited Partners not affiliated with AIMCO who hold at least 3.54%
of the Units are needed to approve the Amendments.
SOLICITATION OF CONSENTS
Consents will be solicited by mail, telephone, e-mail, fax and in
person. Solicitations may be made by representatives of the General Partner,
none of whom will receive additional compensation for such solicitations. The
cost of preparing, assembling, printing and mailing this Consent Solicitation
Statement and the enclosed Consent Form will be borne by the Partnership. The
Partnership has retained an Information Agent in connection with this consent
solicitation. The fees and expenses of the Information Agent will be paid by the
Partnership.
CONSENT PROCEDURES
LIMITED PARTNERS WHO DESIRE TO CONSENT TO THE AMENDMENTS SHOULD DO SO
BY MARKING THE APPROPRIATE BOX ON THE CONSENT FORM INCLUDED HEREWITH, AND
SIGNING, DATING AND DELIVERING THE CONSENT FORM TO THE GENERAL PARTNER BY MAIL
IN THE SELF-ADDRESSED, POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE, BY
OVERNIGHT COURIER OR BY FACSIMILE AT THE ADDRESS OR FACSIMILE NUMBER SET FORTH
ON THE CONSENT FORM, ALL IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN
AND THEREIN.
All Consent Forms that are properly completed, signed and delivered to
the General Partner and not properly revoked (See "Revocation of Instructions"
below) prior to the Amendments becoming effective, will be given effect in
accordance with the specifications thereof. IF A CONSENT FORM IS DELIVERED AND
NEITHER THE "CONSENTS," THE "WITHHOLDS CONSENT" NOR THE "ABSTAINS" BOX IS
MARKED, BUT THE CONSENT FORM IS OTHERWISE PROPERLY COMPLETED AND SIGNED, THE
LIMITED PARTNER WILL BE DEEMED TO HAVE CONSENTED TO THE AMENDMENTS.
Consent Forms must be executed in exactly the same manner as the
name(s) in which ownership of the Units is registered. If the Units to which a
Consent Form relates are held by two or more joint holders, all such holders
should sign the Consent Form. If a Consent Form is signed by a trustee, partner,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary, agency or representative capacity, such
person must so indicate when signing and submit with the Consent Form evidence
satisfactory to the Partnership of authority to execute the Consent Form.
The execution and delivery of a Consent Form will not affect a Limited
Partner's right to sell or transfer the Units. All Consent Forms received by the
General Partner (and not properly revoked) prior to the time the Amendments
become effective, will be effective with respect to the Units owned by the
Limited Partner who executed such Consent Form, notwithstanding a subsequent
transfer of such Units, unless the Limited Partner who owns the Units revokes
such Consent Form prior to the time the Amendments become effective by following
the procedures set forth under "Revocation of Instructions" below.
All questions as to the validity, form and eligibility (including time
of receipt) regarding consent procedures will be determined by the General
Partner in its sole discretion, which determination will be conclusive and
binding. The Partnership reserves the right to reject any or all Consent Forms
that are not in proper form. The Partnership also reserves the right to waive
any defects, irregularities or conditions of delivery as to particular Consent
Forms. Unless waived, all such defects or irregularities in connection with the
deliveries of Consent Forms must be cured within such time as the General
Partner determines. Neither the General Partner nor any of its affiliates or any
other persons shall be under any duty to give any notification of any such
defects, irregularities or waivers, nor shall any of them incur any liability
for failure to give such notification. Deliveries of Consent Forms will not be
deemed to have been made until
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any irregularities or defects therein have been cured or waived. The
interpretations of the terms and conditions of this solicitation by the General
Partner shall be conclusive and binding.
REVOCATION OF INSTRUCTIONS
Any Limited Partner who has delivered a Consent Form to the General
Partner may revoke the instructions set forth in such Consent Form by delivering
to the General Partner a written notice of revocation prior to the Amendments
becoming effective. In order to be effective, a notice of revocation of the
instructions set forth in a Consent Form must (i) contain the name of the person
who delivered the Consent Form, (ii) be in the form of a subsequent Consent Form
marked either as "CONSENTS," "WITHHOLDS CONSENT" or "ABSTAINS," as the case may
be, or in a writing delivered to the General Partner stating that the prior
Consent Form is revoked, (iii) be signed by the Limited Partner in the same
manner as the original signature on the Consent Form, and (iv) be received by
the General Partner prior to the Amendments becoming effective, at one of its
addresses or fax number set forth on the Consent Form. A purported notice of
revocation that lacks any of the required information, is dispatched to an
improper address or telephone number or is not received in a timely manner will
not be effective to revoke the instructions set forth in a Consent Form
previously given. A revocation of the instructions set forth in a Consent Form
can only be accomplished in accordance with the foregoing procedures. NO LIMITED
PARTNER MAY REVOKE THE INSTRUCTIONS SET FORTH IN A CONSENT FORM AFTER THE
AMENDMENTS HAVE BECOME EFFECTIVE.
NO APPRAISAL RIGHTS
Limited Partners are not entitled to dissenters' appraisal rights under
California law or the Partnership's Agreement of Limited Partnership in
connection with the Amendments.
GENERAL PARTNER'S POSITION WITH REGARD TO THE AMENDMENTS
The General Partner believes that the Amendments are fair and in the
best interests of the Partnership and the Limited Partners who are not
affiliated with the General Partner. In making its determination, the General
Partner considered the fact that the current Partnership Agreement does not
contain any provisions relating to the ownership of real property. The
Amendments will add provisions to the Partnership Agreement authorizing the
General Partner to acquire, own, improve, manage, lease, operate, finance,
refinance, sell or exchange any property acquired through the exercise of the
Partnership's remedies under the Master Loan. The Amendments do not affect the
requirement of Limited Partners' approval for the sale of all or substantially
all of the Partnership's assets within a twelve-month period.
The General Partner has not retained an unaffiliated representative to
act on behalf of the Limited Partners in connection with the Amendments and the
proposals contained herein.
THE AMENDMENTS
The Amendments will specifically authorize the Partnership, either
directly or indirectly through single-purpose wholly-owned subsidiaries, to
acquire, own, improve, manage, operate, lease, finance, refinance, sell and
exchange real property it may acquire pursuant to the Master Loan as well as
engage in any other activities and conduct such other business incidental to the
foregoing, as the General Partner may reasonably deem necessary or advisable.
The Amendments would also allow the Partnership to engage in like-kind exchanges
intended to qualify as an exchange under Section 1031 of the Code, although the
General Partner has no present plans or intentions to engage in such exchanges.
Therefore, the General Partner could exchange, on behalf of the Partnership,
real property for other real property or could effectively sell real property
and buy other real property in transactions intended to qualify as like-kind
exchanges under Section 1031 of the Code.
The Amendments will change the definition of "Surplus Funds" so that
such definition would include proceeds from the sale, financing or refinancing
of the Partnership's properties and thus allow the General Partner to distribute
amounts from such activities.
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In order to comply with certain United States Federal income tax
requirements, the Amendments will require the Partnership to maintain capital
accounts and distribute proceeds from the liquidation of the Partnership
according to each Limited Partner's positive capital account balance. These
provisions will not affect distributions and allocations of the Partnership's
income to the Limited Partners.
The text of the Amendments are set forth on Annex I hereto.
THE MASTER LOAN
The Partnership was formed for the benefit of its Limited Partners to
lend funds to a predecessor of CCEP/2. The Partnership loaned funds to CCEP/2's
predecessor pursuant to a nonrecourse note with a participation interest (the
"Master Loan"). At December 31, 2000, the recorded investment in the Master Loan
was considered to be impaired under Statement of Financial Accounting Standard
No. 114 ("SAS 114"), Accounting by Creditors for Impairment of a Loan. The
Partnership measures the impairment of the Master Loan based upon the fair value
of the collateral due to the fact that repayment of the Master Loan is expected
to be provided solely by the collateral. For the year ended December 31, 2000
and the quarter ended March 31, 2001, the Partnership recorded approximately
$1,198,000 and $904,000 of interest income based upon "Excess Cash Flow"
generated (as defined in the terms of the Master Loan).
The fair value of the collateral properties 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. This methodology has not changed from
that used in prior calculations performed by the General Partner in determining
the fair value of the collateral properties. There was no change in the
provision for impairment loss for the year ended December 31, 2000 or the
quarter ended March 31, 2001. The General Partner evaluates the net realizable
value on a semi-annual basis.
Interest, calculated on the accrual basis, due to the Partnership
pursuant to the terms of the Master Loan, but not recognized in the
Partnership's consolidated statements of operations due to the impairment of the
Master Loan, totaled approximately $23,722,000 for the year ended December 31,
2000 and $5,773,000 for the quarter ended March 31, 2001. Interest income is
recognized on the cash basis as allowed under SAS 114. At December 31, 2000 and
March 31, 2001, such cumulative unrecognized interest totaling approximately
$223,972,000 and $229,745,000 was not included in the balance of the investment
in the Master Loan on the Partnership's balance sheet. In addition, three of
CCEP/2's four properties are collateralized by first mortgages totaling
approximately $10,391,000 after the new mortgages. The Master Loan is
subordinated to these mortgages and this has been taken into consideration in
determining the fair value of the Master Loan.
During the year ended December 31, 2000 and the three months ended
March 31, 2001, the Partnership received approximately $7,724,00 and $9,000 in
principal payments on the Master Loan. This amount represents cash received on
certain investments held by CCEP/2, which are required to be transferred to the
Partnership pursuant to the Master Loan Agreement.
Most of the properties owned by CCEP/2 are subject to nonrecourse
mortgage notes collateralized by deeds of trust on the real property. The
mortgage notes require prepayment penalties if repaid prior to maturity. All of
these notes are senior in terms of payment to the Master Loan.
On October 3, 2000, CCEP/2 refinanced the mortgage note payable on the
Winders Apartments, a 257 unit apartment complex located in Houston, Texas. The
refinancing replaced mortgage indebtedness of $3,000,000 with a new mortgage of
$6,075,000. The mortgage was refinanced at a rate of 7.83% compared to the prior
rate of 7.33%. Payments of approximately $50,000 are due on the first day of
each month until the loan matures on November 1, 2010. A balloon payment of
approximately $3,905,000 is due at maturity.
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On October 31, 2000, CCEP/2 refinanced the mortgage note payable on
Highcrest Townhomes, a 176 unit apartment complex located in Wood Ridge,
Illinois. The refinancing replaced mortgage indebtedness of $4,000,000 with a
new mortgage of $6,760,000. The mortgage was refinanced at a rate of 7.72%
compared to the prior rate of 7.33%. Payments of approximately $55,000 are due
on the first day of each month until the loan matures on February 1, 2010. A
balloon payment of approximately $3,905,000 is due at maturity.
On December 21, 2000, CCEP/2 refinanced the mortgage note payable on
Canyon Crest Apartments, a 90 unit apartment complex located in Littleton,
Colorado. The refinancing replaced mortgage indebtedness of $2,000,000 with a
new mortgage of $3,640,000. The mortgage was refinanced at a rate of 7.10%
compared to the prior rate of 7.33%. Payments of approximately $28,000 are due
on the first day of each month until the loan matures on January 1, 2011. A
balloon payment of approximately $2,613,000 is due at maturity.
During the year ended December 31, 2000, the general partner of CCEP/2
determined that it was in the best interest of CCEP/2 to repay the mortgage note
on Village Brooke, a former 333 unit apartment complex in Cincinnati, Ohio which
was destroyed by a tornado in April 1999. Accordingly, funds which had
previously been restricted to rebuild the property were used to repay the
mortgage note of approximately $6,517,000 which had encumbered the property. It
is expected that a construction loan will be obtained to re-construction of
Village Brooke.
In connection with the recent mortgages incurred by CCEP/2, the
Partnership also agreed with the mortgage lenders that it would seek to extend
its term within approximately the next 36 months to at least November 1, 2020.
If the Partnership's term is not so extended, which extension would require the
consent of all Limited Partners, the Partnership has agreed to sell the Master
Loan. Failure to so extend the Partnership's term, or sell the Mortgage Loan if
the Partnership's term is not so extended, will constitute defaults under
CCEP/2's new mortgages. Any such sale of the Master Loan may be made to AIMCO or
to certain affiliates of AIMCO. However, it is expected that any sale to an
affiliate of AIMCO will be at a price and terms not less favorable than those
which could be obtained from an independent third party purchaser. The sale of
the Mortgage Loan may require the approval of the Limited Partners holding a
majority of the Units. However, if the Partnership successfully forecloses on
CCEP/2's properties, or obtains deeds in lieu of foreclosure, the Master Loan
will terminate. CCEP/2 has also agreed to extend its term to at least November
1, 2020, or it will be in default under its mortgages.
In connection with CCEP/2's new mortgages, the Partnership or certain
AIMCO affiliates can obtain deeds in lieu of foreclosure on the properties
securing the Master Loan or otherwise foreclose under the Master Loan; provided
that (i) title to such properties are placed in the Partnership's or such
affiliate's name; (ii) such action satisfies the indebtedness under the Master
Loan and (iii) the mortgage lender is given 30 days advance notice of such
action and the anticipated costs of the mortgage lender are paid in advance.
Other action to foreclose on the properties or seek other remedies for the
defaults under the Master Loan require the consent of the lender under the
mortgages. The General Partner intends to seek the voluntary transfer of such
properties to the Partnership or one or more single-purpose wholly-owned
subsidiaries formed for that purpose through deeds in lieu of foreclosure.
The Master Loan matured in November 2000, and amounted to approximately
$263,751,000 as of December 31, 2000 and $269,505,000 as of March 31, 2001.
However, CCEP/2 does not have sufficient liquid assets to pay the Master Loan,
having only $2,972,000 in cash and cash equivalents as of December 31, 2000.
Further, the General Partner estimates that the net proceeds from a sale of the
CCEP/2 properties securing the Master Loan would be substantially less than the
amount due under the Master Loan. At December 31, 2000, CCEP/2's partners'
deficit was approximately $268,414,000. Although CCEP/2 generated cash from
operations of approximately $7,870,000 during the year ended December 31, 2000,
approximately $24,920,000 of interest accrued under the Master Loan and
approximately $1,198,000 of interest was actually paid under the Master Loan.
TERM OF PARTNERSHIP
The prospectus pursuant to which the Partnership sold its Units in 1983
indicated that it was expected that most properties held by CCEP/2 would be sold
within twelve years of acquisition, depending upon real estate and money
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markets, the economic climate and the tax consequences to the Partners
prevailing at the time. It is not known when any property owned by CCEP/2, even
if acquired by the Partnership, may be sold and until such time the Partnership
and CCEP/2 it may continue in operation. Under the Partnership's Agreement of
Limited Partnership, the term of the Partnership will continue until December
31, 2013, unless sooner terminated as provided in such Agreement or by law. The
Partnership has agreed with the lender of CCEP/2's three new mortgages that
within the next 36 months it will either extend its partnership term to at least
November 1, 2020 or will sell the Master Loan. However, it requires the
unanimous consent of all of the Partnership's Limited Partners to extend the
term. CCEP/2 terminates on July 24, 2011 unless sooner terminated under CCEP/2's
agreement of limited partnership or by law. However, CCEP/2 has also agreed to
extend within the next 18 months its partnership term through at least November
1, 2020.
The Agreement of Limited Partnership provides that the Partnership may
be terminated and dissolved upon a vote of Limited Partners who own more than
50% of the outstanding Units. The Agreement further provides that, upon any such
termination, the General Partner shall liquidate the Partnership's assets as
promptly as possible, but in an orderly and businesslike manner so as not to
involve any undue sacrifice, and distribute the net proceeds therefrom to the
Partners as more fully provided in the Partnership Agreement.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
If the Partnership acquires any property from CCEP/2 the General
Partner will evaluate a sale of such property by considering various factors,
such as the Partnership's financial position and real estate market conditions.
The General Partner will monitor the properties' specific locale and sub-market
conditions (including stability of the surrounding neighborhood, evaluating
current trends, competition, new construction and economic changes. If the
acquired property is not immediately sold, the General Partner will oversee its
operating performance and evaluate the physical improvement requirements. In
addition, the financing structure for each property (including any prepayment
penalties), tax implications, availability of attractive mortgage financing, and
the investment climate will be considered. Any of these factors, and possibly
others, could potentially contribute to any decision by the General Partner to
sell, refinance, upgrade with capital improvements or retain a particular
property. After taking into account the foregoing considerations, the General
Partner does not currently intend to sell any properties the Partnership may
acquire from CCEP/2. However, it is possible that the resale market for
properties could improve over time, making a sale of the properties at some
point in the future a more viable option than it is currently. The General
Partner does not believe that a sale of any of such properties at the present
time would adequately reflect the properties' future prospects. Another
significant factor to be considered by the General Partner is the likely tax
consequences of a sale of the properties for cash. Such a transaction may result
in tax liabilities for certain Limited Partners.
CONFLICTS OF INTEREST
The General Partner has substantial conflicts of interest with respect
to the Amendments. An affiliate of the General Partner manages CCEP/2's
properties and receives management fees, other fees and reimbursement of its
expenses. In addition, the General Partner receives fees and reimbursement of
its expenses for managing the Partnership. Therefore, the interests of the
General Partner and its affiliates in continuing the Partnership are different
than those of the Limited Partners who may desire to have the Partnership
dissolved and liquidated more quickly.
The following table sets forth, for each of the years indicated,
compensation paid by the Partnership and CCEP/2 to the General Partner and its
affiliates. There are no current plans to change the Partnership's existing
compensation arrangements or distribution policy.
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The
Partnership CCEP/2
----------- -------------------------------------------------------------------------------------
For
Reimbursement Real Estate Property Investment
Fees & Services of Brokerage Management Refinancing Advisory Lease
Year Expenses Affiliates Commissions Fees Fees Fees Commission
- --------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
1998 ........ $ 303,000 $ 292,000 $ 0 $ 696,000 $ 0 $ 173,000 $ 381,000
1999 ........ 217,000 237,000 1,581,000 304,000 0 178,000 0
2000 ........ 444,000 172,000 0 257,000 165,000 178,000 0
Affiliates of the General Partner are entitled to receive 5% of gross
receipts from all of the residential properties for providing property
management services. In addition, prior to October 1, 1998, affiliates of the
General Partner were entitled to receive varying percentages of gross receipts
from all the Partnership's commercial properties for providing property
management services. Effective October 1, 1998, these services for the
commercial properties were provided by an unrelated party and such properties
have been sold.
CCEP/2 is subject to an Investment Advisory Agreement with an affiliate of
the General Partner. This agreement provides for an annual fee, payable in
monthly installments, to an affiliate of the General Partner for advising and
consulting services for CCEP/2's properties.
The General Partner of the Partnership and the general partner of CCEP/2
are both indirect wholly-owned subsidiaries of AIMCO. Because AIMCO, the
Partnership and CCEP/2 each invest in apartment properties, these properties may
compete with one another for tenants. Furthermore, Limited Partners should bear
in mind that AIMCO may in the future acquire properties in general market areas
where the Partnership's and CCEP/2's properties are located. It is believed that
this concentration of properties in a general market area will facilitate
overall operations through collective advertising efforts and other operational
efficiencies. In managing AIMCO's properties, AIMCO will attempt to reduce such
conflicts between competing properties by referring prospective customers to the
property considered to be most conveniently located for the customer's needs.
The Partnership's Agreement of Limited Partnership provides that the
General Partner is responsible for the management and operation of the
Partnership, subject to certain limitations set forth in the Partnership
Agreement. Such limitations include, but are not limited to (i) a limitation on
related party agreements and (ii) restrictions on the General Partner's ability
to act on behalf of the Partnership without the consent of the Limited Partners
in connection with the sale of all or substantially all of the Partnership's
assets within a twelve-month period. The General Partner is subject to the
fiduciary duties it owes to the Partnership and the Limited Partners. Beyond
these provisions, there are no contractual restrictions on the General Partner
in dealing with the Partnership, either as a general partner or a limited
partner. Further, there are no other contractual restrictions on the voting
rights of the General Partner and its affiliates with respect to Units held by
such parties. Since the General Partner and its affiliates already own
approximately 47% of the outstanding Units, they can substantially influence the
vote of the Limited Partners on any matter with respect to which the Limited
Partners are entitled to vote and which requires a majority vote.
FIDUCIARY DUTIES; INDEMNIFICATION
California law requires a general partner to adhere to fiduciary duty
standards under which it owes its limited partners a duty of loyalty and a duty
of care. This generally prohibits a general partner from competing with a
partnership in the conduct of the partnership's business on behalf of a party
having an interest adverse to the partnership and requires the general partner
to exercise any right consistent with the obligation of good faith and fair
dealing and free of gross negligence, reckless conduct, intentional misconduct
or known violations of law. A partnership agreement (a) may not eliminate the
duty of loyalty, but, if not manifestly unreasonable, it may either identify
specific activities that do not violate the duty of loyalty or allow for all of
the partners (or some percentage identified in the partnership agreement) to
authorize or ratify, after full disclosure of all material facts, a specific act
or transaction that otherwise
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would violate that duty and (b) may contain provisions releasing a partner from
liability for actions taken in good faith and in the honest belief that the
actions are in the best interest of the partnership, while indemnifying the
partner against any good faith belief that he or she has the power to act.
Further, a partner does not violate such duties because the partner's conduct
furthers the partner's own interest.
The Partnership's Agreement of Limited Partnership provides that, except in
the case of negligence or misconduct, the General Partner and its affiliates or
agents acting on its behalf shall not be liable, responsible or accountable in
damages or otherwise to the Partnership (in any action, including a Partnership
derivative suit) or to any of the Limited Partners for doing any act or failing
to do any act, the effect of which may cause or result in loss or damage to the
Partnership, if done in good faith to promote the best interests of the
Partnership. The General Partner and its affiliates or agents shall be entitled
to be indemnified by the Partnership from the assets of the Partnership, or as
an expense of the Partnership, but not from the Limited Partners, against any
liability or loss, as a result of any claim or legal proceeding (whether or not
the same proceeds to judgment or is settled or otherwise brought to a
conclusion) relating to the performance or non-performance of any act concerning
the activities of the Partnership except in the case where the General Partner
or its affiliates or agents are guilty of bad faith, negligence, misconduct or
reckless disregard of duty, provided such act or omission was done in good faith
to promote the best interests of the Partnership. The indemnification shall
include the payment of reasonable attorneys' fees and other expenses (not
limited to taxable costs) incurred in settling or defending any claims,
threatened action or finally adjudicated legal proceedings.
The Partnership's Agreement of Limited Partnership provides that,
notwithstanding the foregoing, neither the General Partner nor any officer,
director, employee, agent, subsidiary or assign of the General Partner, its
affiliates, or CCEP/2 shall be indemnified from any liability, loss or damage
incurred by them in connection with (i) any claim or settlement involving
allegations that the Securities Act of 1933 was violated by the General Partner
or by any such other person or entity unless: (a) the General Partner or other
persons or entities seeking indemnification are successful in defending such
action and (b) such indemnification is specifically approved by a court of law
which shall have been advised as to the current position of both the Securities
and Exchange Commission and the California Commissioner of Corporations
regarding indemnification for violations of securities law; or (ii) any
liability imposed by law, including liability for fraud, bad faith or
negligence.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences of an investment in the Partnership as a Limited Partner if the
Amendments are approved and the Partnership acquires properties currently held
by CCEP/2. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, rulings issued by the Internal
Revenue Service ("IRS"), and judicial decisions, all as in effect as of the date
of this Consent Solicitation Statement and all of which are subject to change or
differing interpretations, possibly with retroactive effect. This summary is for
general information only and does not address all aspects of United States
Federal income taxation that may be relevant in the particular circumstances of
each Limited Partner or Limited Partners subject to special treatment under the
Code (including for example, financial institutions, broker-dealers,
corporations, Limited Partners subject to the alternative minimum tax and,
except to the extent discussed below, tax-exempt organizations and foreign
investors, as determined for United States Federal income tax purposes). In
addition, this discussion does not address all aspects of state, local, or
foreign tax consequences. This summary assumes that Limited Partners hold their
Units as capital assets (generally, property held for investment). No opinion of
counsel or ruling from the IRS will be requested with respect to the United
States Federal income tax consequences of an investment in the Partnership, and
as such, there can be no assurances that the IRS will agree with the summary set
forth herein.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE APPROVAL OF THE
AMENDMENTS AND THE ACQUISITION OF THE PROPERTIES CURRENTLY HELD BY CCEP/2 TO
LIMITED PARTNERS DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND
INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW
FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH
LIMITED PARTNER IS
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URGED TO CONSULT ITS TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE AMENDMENTS AND THE ACQUISITION OF THE PROPERTIES HELD BY
CCEP/2.
PARTNERSHIP STATUS. The General Partner believes that the Partnership is,
and will continue to be, classified and taxed as a partnership and not as a
publicly traded partnership taxable as a corporation for United States Federal
income tax purposes. The following summary assumes that the Partnership is
classified and taxed as a partnership for United States Federal income tax
purposes.
TAXATION OF EXEMPT ORGANIZATIONS. Special United States Federal income tax
considerations apply to Limited Partners, such as individual retirement
accounts, Keogh plans, and certain corporate pension/profit sharing plans, that
are exempt from United States Federal income taxation under Section 501(a) of
the Code ("Exempt Organizations").
Exempt Organizations are subject to United States Federal income tax on
their "unrelated business taxable income" ("UBTI"), generally income or gain
derived (either directly or through partnerships) from a trade or business, the
conduct of which is substantially unrelated to the exercise or performance of
the organization's exempt purpose or function. In general, certain types of
income, including rents from real property, are excluded from the calculation of
UBTI. However, "unrelated debt-financed income", including rents from real
property, derived from debt-financed property generally will be included in
UBTI. "Unrelated debt-financed income" generally consists of (i) income derived
by an Exempt Organization (directly or through a partnership) from
income-producing property with respect to which there is "acquisition
indebtedness" at any time during the taxable year, and (ii) gains derived by an
Exempt Organization (directly or through a partnership) from the disposition of
property with respect to which there is "acquisition indebtedness" at any time
during the twelve-month period ending with the date of such disposition. In
addition, for certain types of Exempt Organizations such as charitable remainder
annuity trusts and charitable remainder unitrusts, the receipt of any UBTI may
have material adverse consequences, such as causing all of their income from all
sources in that year to be taxable. If the Partnership acquires the properties
held by CCEP/2 subject to their mortgages, the amount of the indebtedness
secured by the mortgages will be treated as acquisition indebtedness. In such
event, all or a portion of the Partnership's income derived by a Limited Partner
that is an Exempt Organization will constitute UBTI, unless the Limited Partner
qualifies for an exemption from the unrelated debt-financed income rules.
Certain categories of Exempt Organizations ("Qualified Organizations") may
qualify for an exemption from the unrelated debt-financed income rules for
indebtedness incurred by the Qualified Organizations in acquiring real property
(either directly or through partnerships). "Qualified Organizations" include
qualified trusts under Section 401, but do not include other Exempt
Organizations described in Section 501(c) (other than Section 501(c)(25)) or
Individual Retirement Accounts. This exemption would be available to a Qualified
Organization with regard to indebtedness incurred by the Partnership to acquire
real property if, among other things, the (i) the Qualified Organization's share
of the overall Partnership income for any taxable year is not greater than such
Exempt Organization's share of the overall Partnership loss for the taxable year
for which such Exempt Organization's loss share is the smallest, and (ii) each
allocation under the Partnership's Agreement of Limited Partnership has
substantial economic effect under Section 704(b)(2) of the Code.
The Partnership will be required to report to a Limited Partner which is an
Exempt Organization information as to the portion, if any, of its income and
gains from the Partnership for each year which will be treated as UBTI. The
calculation of such amount with respect to transactions entered into by the
Partnership is highly complex, and there is no assurance that the Partnership's
calculation of UBTI will be accepted by the IRS. Each Limited Partner that is an
Exempt Organization is urged to consult its tax advisor concerning the possible
United States Federal, state and local tax consequences resulting from the
Amendments and the Partnership's acquisition of the properties currently held by
CCEP/2.
TAX BASIS OF A PARTNERSHIP UNIT. If a Limited Partner acquired his Units
for cash, his initial tax basis in such Units was generally equal to the cash
investment in the Partnership increased by the Limited Partner's allocable share
of Partnership liabilities at the time he acquired his Units. A Limited
Partner's initial tax basis is (i) increased by (A) the Limited Partner's
allocable share of Partnership income and gains, and (B) any increases in the
Limited Partner's
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allocable share of Partnership liabilities, and (ii) decreased by (A) the
Limited Partner's allocable share of Partnership losses, and (B) any decreases
in the Limited Partner's allocable share of Partnership liabilities. A Limited
Partner's allocable share of Partnership liabilities is likely to increase if
the Partnership acquires the properties currently held by CCEP/2 subject to the
mortgage notes payable on the CCEP/2 properties.
DISTRIBUTIONS OF CASH AND OTHER PROPERTY. If cash distributions, including
a "deemed" cash distribution as discussed below, received by a Limited Partner
in any taxable year exceed his allocable share of the Partnership taxable income
for the year, the excess will constitute a return of capital to the extent of
such Limited Partner's adjusted tax basis in his Units. Such return of capital
will not be includible in the taxable income of the Limited Partner, but it will
reduce, but not below zero, the adjusted tax basis of the Units held by the
Limited Partner. If a Limited Partner's adjusted tax basis in his Partnership
interest is reduced to zero, a subsequent cash distribution received by the
Limited Partner will be subject to tax as capital gain and/or ordinary income.
A decrease in a Limited Partner's share of Partnership liabilities
resulting from the payment or other settlement, or reallocation of such
liabilities is generally treated as a deemed cash distribution. A decrease in a
Limited Partner's percentage interest in Partnership because of the issuance by
the Partnership of additional Units or otherwise, may decrease a Limited
Partner's share of the Partnership's nonrecourse liabilities and thus, may
result in a corresponding deemed distribution of cash.
Generally, no gain or loss is recognized by a Limited Partner on a
distribution solely of property other than cash, unless the Partnership has
Section 751 property and the distribution is non-pro rata. A non-pro rata
distribution (or deemed distribution) of money or property may result in
ordinary income to a Limited Partner, regardless of such Limited Partner's
adjusted tax basis in his Units, if the distribution reduces such Limited
Partner's share of the Partnership's Section 751 Assets. "Section 751 Assets"
are defined by the Code to include "unrealized receivables" or "inventory
items." Among other things, "unrealized receivables" include amounts
attributable to previously claimed depreciation deductions on certain types of
property.
SALE OF REAL PROPERTY. The gain or loss realized by the Partnership, and
thus the Limited Partners, from the sale or other disposition of the properties
acquired from CCEP/2 may be capital gain or loss, gain or loss from "Section
1231 property" and/or ordinary income or loss. A Limited Partner's tax liability
resulting from his allocable share of income or gain from the sale or other
disposition of property may exceed any cash proceeds distributed to the Limited
Partner. The maximum United States Federal income tax rate on capital gains
recognized by individuals and certain non-corporate Limited Partners
attributable to real property held for more than 12 months, other than
depreciation recapture, is generally 20%. The maximum United States Federal
income tax rate for gains attributable to the sale of depreciable real property
held for more than 12 months is 25% to the extent of previously claimed real
property depreciation. In addition, gains attributable to the sale of
depreciable personal property held for more than 12 months or other items
subject to "recapture" are subject to United States Federal income tax at
ordinary income rates to the extent of previously claimed accelerated
depreciation deductions.
SALE OR REDEMPTION OF A UNIT. A Limited Partner will recognize gain or loss
upon a sale of his Units, a redemption of his Units for cash or another taxable
disposition of his Units. Gain or loss recognized upon a sale or exchange of a
Unit will be equal to the difference between (i) the amount realized in the
transaction (i.e., the sum of cash and the fair market value of any property
received for the Unit, plus the amount of Partnership liabilities allocable to
the Unit at such time) and (ii) the Limited Partner's adjusted tax basis in the
Unit disposed of, which tax basis will be adjusted for the Limited Partner's
allocable share of Partnership income or loss for the taxable year of
disposition. A Limited Partner's tax liability resulting from his gain, if any,
recognized on a disposition of his Units could exceed the amount of cash and the
fair market value of property received.
If the Partnership redeems all of a Limited Partner's Units for cash, the
tax consequences to the Limited partner would be the same as described in the
preceding paragraph. If the Partnership redeems less than all of a Limited
Partner's Units, the Limited Partner would recognize taxable gain only to the
extent that the cash, plus the amount of
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the Partnership liabilities allocable to the redeemed Unit, exceeded the Limited
Partner's adjusted tax basis in all of his Units immediately before the
redemption.
Capital gains recognized by individuals and certain other noncorporate
Limited Partners upon the sale or taxable disposition of a Unit will generally
be subject to a maximum United States Federal income tax rate of 20% if the Unit
is held for more than 12 months and will be taxed at ordinary income tax rates
if the Unit is held for 12 months or less. Generally, gain or loss recognized by
a Limited Partner on the sale or redemption of a Unit will be taxable as capital
gain or loss. However, to the extent that the amount realized upon the sale or
redemption of a Limited Partner's Unit attributable to the Limited Partner's
share of "unrealized receivables" of the Partnership exceeds the basis
attributable to those assets, such excess will be treated as ordinary income.
Among other things, "unrealized receivables" include amounts attributable to
previously claimed depreciation deductions on certain types of property. In
addition, the maximum United States Federal income tax rate for net capital
gains attributable to the sale of depreciable real property (which may be
determined to include a Unit in the Partnership) held for more than 12 months is
currently 25% (rather than 20%) to the extent of previously claimed depreciation
deductions that would not be treated as "unrealized receivables."
LIMITATIONS ON DEDUCTIBILITY OF LOSSES.
BASIS LIMITATION. To the extent that a Limited Partner's allocable
share of Partnership deductions and losses exceeds his adjusted tax basis in his
Units at the end of the taxable year in which the losses and deductions flow
through, the excess losses and deductions cannot be utilized, for United States
Federal income tax purposes, by the Limited Partner in such year. The excess
losses and deductions may, however, be utilized in the first succeeding taxable
year in which, and to the extent that, there is an increase in the adjusted tax
basis of Limited Partner's Units, but only to the extent permitted under the
rules discussed below.
"AT RISK" LIMITATION. Under the "at risk" rules, noncorporate taxpayers
and certain closely held corporations are generally not permitted to claim a
deduction, for United States Federal income tax purposes, in respect of a loss
from an activity, whether conducted directly by the taxpayer or through an
investment in a partnership, to the extent that the loss exceeds the aggregate
dollar amount which the taxpayer has "at risk" in such activity at the close of
the taxable year in which the loss occurs. To the extent that losses are not
permitted to be used in any taxable year, such losses may be carried over to
subsequent taxable years and may be claimed as a deduction by the taxpayer if,
and to the extent that, the amount which the taxpayer has "at risk" is
increased. Provided certain requirements are met, a holder of a Unit should be
considered at risk with respect to his allocable share of any qualified
nonrecourse financing which is secured by the real property.
"PASSIVE ACTIVITY LOSS" LIMITATION. The passive activity loss rules
limit the use by a Limited Partner who is an individual investor, as well as
certain other types of investors, of losses derived from passive activities,
which generally includes an investment in limited partnership interests such as
the Units. If an investment in a Unit is treated as a passive activity, a
Limited Partner would not be able to use losses from the Partnership to offset
nonpassive activity income, including salary, business income, and portfolio
income (e.g., dividends, interest, royalties, and gain on the disposition of
portfolio investments) received during the taxable year. Passive activity losses
that are disallowed for a particular taxable year may, however, be carried
forward to offset passive activity income earned by the Limited Partner in
future taxable years. In addition, such disallowed losses may be claimed as a
deduction, subject to the limitations on the deductibility of losses discussed
herein, upon a taxable disposition of all of a Limited Partner's Units in the
Partnership in certain circumstances, regardless of whether such Limited Partner
has received any passive activity income during the year of disposition.
TAXATION OF FOREIGN LIMITED PARTNERS. A foreign Limited Partner will be
considered to be engaged in a United States trade or business on account of the
Partnership's ownership of the properties acquired from CCEP/2. In such event, a
foreign Limited Partner will be required to file United States Federal tax
returns with respect to its allocable share of the Partnership's income which is
effectively connected to any trade or business of the Partnership. A foreign
Limited Partner that is a corporation may also be subject to United States
branch profit tax at a rate of 30%, in addition
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to regular United States Federal income tax, on its allocable share of such
income. Such a tax may be reduced or eliminated by an income tax treaty between
the United States and the country with respect to which the foreign Limited
Partner is resident for tax purposes. In addition, gain recognized by a foreign
Limited Partner on a sale or other taxable disposition of a Unit will be subject
to United States Federal income tax under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). An acquiror of Units of a foreign Limited
Partner will be required, under the FIRPTA provisions of the Code, to deduct and
withhold 10% of the amount realized by the foreign Limited Partner on the
disposition. The amount withheld would be creditable against the foreign Limited
Partner's United States Federal income tax liability and, if the amount withheld
exceeds his actual tax liability, he could claim a refund from the IRS by filing
a United States Federal income tax return. Foreign Limited Partners are advised
to consult their tax advisors regarding the effects the Partnership's ownership
of the properties acquired from CCEP/2 may have on information return
requirements and other United States and non-United States tax matters,
including the tax consequences of the Partnership's ownership of such properties
for the country or other jurisdiction of which such foreign Limited Partner is a
citizen or in which such foreign Limited Partner resides or is otherwise
located.
STATE, LOCAL AND FOREIGN TAXES. The Partnership and Limited Partners may be
subject to state, local or foreign taxation in various jurisdictions, including
those in which the Partnership transacts business, owns property or resides. It
should be noted that the properties currently held by CCEP/2 are located in a
number of different states and local jurisdictions, and the Partnership and
Limited Partners may be required to file income tax returns in some or all of
those jurisdictions. In addition, the state, local or foreign tax treatment of
the Partnership and Limited Partners may not conform to the United States
Federal income tax consequences discussed above. Consequently, Limited Partners
should consult their tax advisors regarding the application and effect of state,
local foreign tax laws on the Partnership's ownership of the properties acquired
from CCEP/2.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Neither the General Partner nor any director or officer of the General
Partner owns any Units. The following table sets forth certain information
regarding Units of the Partnership owned by each person who is known by the
Partnership to own beneficially more than 5% of the Units as of May 31, 2001:
Name and Address* of Amount and Nature of
Beneficial Owner Direct Owner Percent of Class
- ----------------------------------- ----------- ----------------
AIMCO Properties L.P. 168,890.0(1) 18.58%
Cooper River Properties, LLC 67,518.7(2) 7.42%
AIMCO IPLP, L.P. 17,240.6(3) 1.90%
Reedy River Properties, LLC 168,736.5(4) 18.56%
- ----------
*Colorado Center, Tower Two
2000 South Colorado Boulevard, Suite 2-1000
Denver, Colorado 80222
(1) The Units may be deemed beneficially owned by AIMCO-GP, Inc. (which is
the general partner of AIMCO Properties, L.P.) and AIMCO (which owns
AIMCO-GP, Inc.)
(2) The Units may be deemed beneficially owned by AIMCO IPLP, L.P.
(formerly Insignia Properties, L.P.) and AIMCO. Cooper River
Properties, LCC is wholly owned by AIMCO IPLP, L.P. and AIMCO/IPT, Inc.
is the sole general partner of AIMCO IPLP, L.P. AIMCO owns AIMCO-IPT,
Inc.
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(3) The Units may be deemed beneficially owned by AIMCO/IPT, Inc. (which is
the general partner of AIMCO IPLP, L.P.) and AIMCO.
(4) The Units may be deemed beneficially owned by AIMCO Properties, L.P.,
AIMCO-GP, Inc. and AIMCO. Reedy River Properties, LCC is a wholly owned
subsidiary of AIMCO Properties, L.P.
AIMCO and its affiliates own approximately 46.46% of the outstanding
Units.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: ConCap Equities, Inc.
General Partner
July __, 2001
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ANNEX I
TEXT OF AMENDMENTS
TO THE LIMITED PARTNERSHIP AGREEMENT
OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
Section 1.04(u) of the Partnership Agreement will be amended to read in its
entirety as follows (new language in italics):
"(u) 'Surplus Funds' shall mean the Partnership's share of the net cash
funds or proceeds resulting from the Partnership's receipt of (a)
principal and additional interest from the Participating Note issued by
the Borrower or (b) any funds from the sale, financing or refinancing
of any of the Partnership's properties, in each case, (i) after
deduction of all expenses incurred in connection therewith and (ii)
less such amounts for working capital reserves as the General Partner
deems reasonably necessary for future Partnership operations."
The first paragraph of Section 1.05 of the Partnership Agreement will
be amended to read in its entirety as follows (new language in italics):
"PURPOSE OF PARTNERSHIP AND INVESTMENT OBJECTIVES. The principal
purpose of the Partnership is to lend funds in return for the
Participating Note secured by deeds of trust on real properties
(including apartment buildings, shopping centers, industrial projects,
office buildings and other similar properties) as shall from time to
time be acquired by the Borrower or such other entity or entities of
which the general partner or managing general partner is the Borrower.
The Participating Notes offer the potential for (i) preserving and
protecting the Limited Partners' original Invested Capital; (ii)
providing quarterly distributions from interest received from the
Borrower or other sources; and (iii) providing special payments to the
extent of additional interest received from such Participating Note;
and to engage in any and all general business activities related to and
incidental to those purposes, including, without limitation, the
acquisition, ownership, improvement, management, operation, leasing,
financing, refinancing, sale or exchange of any real or personal
property obtained (x) in connection with the exercise of any remedy
available to it under the Participating Note or the Master Loan
Agreement or (y) in a transaction (a "1031 Transaction") that is
intended to be a like-kind exchange under Section 1031 of the Internal
Revenue Code of 1986, as amended, or any successor statute, at law or
in equity; provided, however, that the Partnership shall not own or
lease property jointly or in partnership with others, but it may
transfer any such property to a single-purpose wholly-owned
subsidiary."
The fourth sentence of the first paragraph of Section 2.01 of the
Partnership Agreement will be amended to read in its entirety as follows (new
language in italics):
"The General Partner shall have the right, power and authority granted
to General Partner hereunder or by law, or both, to obligate and bind
the Partnership and, on behalf and in the name of the Partnership, to
take such action as the General Partner deems necessary or advisable,
including, without limitation: making, executing and delivering loan
and other agreements such as leases, assignments and transfers and
agreements to purchase, sell, exchange, lease or otherwise deal with
real or personal property, escrow instructions, advances under the
Participating Note, pledges, deeds of trust, mortgages and other
security agreements, promissory notes, checks, drafts and other
negotiable instruments and all other documents and agreements which the
General Partner deems reasonable or necessary in connection with the
lending and investment of the Partnership's net proceeds resulting from
the Capital Contributions received; managing such assets and borrowing
against the assets of the Partnership, including notes and contracts
receivables from the sale of the Partnership assets; including, without
limitation,, the acquisition, ownership, improvement, management,
operation, leasing, financing, refinancing, sale or exchange of any
real or personal property (including the transfer of such property to a
single-purpose wholly-owned subsidiary of the Partnership) obtained (i)
in connection with the exercise of any
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remedy available to it under the Participating Note or the Master Loan
Agreement or (ii) in a 1031 Transaction, at law or in equity.
The penultimate sentence of the second paragraph of Section 2.01 of the
Partnership Agreement will be amended to read in its entirety as follows (new
language in italics):
"The Partnership shall not be permitted to purchase real property,
directly or indirectly, but it may acquire real property upon
exercising any remedy under the Participating Note and the Master Note
Loan Agreement or in a 1031 Transaction."
Article III of the Partnership Agreement is amended to add Section 3.05
and the current Section 3.05 will be renumbered as Section 3.06 and the Sections
of Article III thereafter will be renumbered accordingly (new language in
italics):
"3.05 CAPITAL ACCOUNTS. A capital account ("Capital Account") shall be
established and maintained on the Partnership's books with respect to
each Partner, in accordance with Treasury Regulations Section
1.704-1(b)."
Section 9.02(c) of the Partnership Agreement will be amended to read in
its entirety as follows (new language in italics):
"(c) The proceeds of such liquidation shall be applied and distributed
to the Partners in proportion to and to the extent of positive balances
in their respective Capital Accounts."
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20
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
Colorado Center, Tower Two,
2000 South Colorado Boulevard, Suite 2-1000
Denver, Colorado 80222
CONSENT OF LIMITED PARTNER
The undersigned, a limited partner of Consolidated Capital
Institutional Properties/2 (the "Partnership"), and the holder of units (the
"Units") of limited partnership interest in the Partnership, acting with respect
to all of the Units owned by the undersigned, hereby:
Consents [ ] Withholds Consent [ ] Abstains [ ]
with respect to the Amendments to the Limited Partnership Agreement of the
Partnership as set forth in the Consent Solicitation Statement.
IF NO ELECTION IS SPECIFIED, AN OTHERWISE PROPERLY COMPLETED AND SIGNED
CONSENT FORM WILL BE DEEMED TO BE A CONSENT TO THE AMENDMENTS.
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement, dated July __, 2001. THIS CONSENT IS SOLICITED ON BEHALF OF
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2 BY CONCAP EQUITIES, INC., ITS
GENERAL PARTNER.
A fully completed, signed and dated copy of this Consent Form should be
sent to ConCap Equities, Inc. by mail or overnight courier to the address
specified below, or by fax to the fax number specified below.
Completed and signed consents should be sent to our Information Agent,
River Oaks Partnership Services, Inc., by mail at P.O. Box 2065, South
Hackensack, New Jersey 07606-2065; by overnight courier service at 111 Commerce
Road, Carlstadt, New Jersey 07072 -- Attention: Reorganization Department; by
fax at (201) 896-0910 or by telephone at (888) 349-2005.
Dated:____________, 2001 By:
-----------------------------------------
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Please Print Name
If held jointly:
By:
-----------------------------------------
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Please Print Name
Please sign exactly as you hold your Units. When signing as an attorney-in-fact,
executor, administrator, trustee or guardian, please give your full title. If an
interest is jointly held, each holder should sign. If a corporation, please sign
in full corporate name by a duly authorized officer. If a partnership, please
sign in partnership name by a duly authorized person.