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. 1)
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Consolidated Capital Institutional Properties/2
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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. The
Amendments will not materially effect the 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 intended to first be mailed to
Limited Partners on or about October 18, 2001.
THE AMENDMENTS WILL BECOME EFFECTIVE UPON THE GENERAL PARTNER
RECEIVING CONSENTS FROM LIMITED PARTNERS HOLDING MORE THAN 50% OF THE
OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST IN THE PARTNERSHIP
("UNITS"). Affiliates of the General Partner hold approximately 47.45% of
the Units and will consent to the Amendments. Accordingly, the consent of
other Limited Partners holding at least 2.55% of the Units will be needed
to approve the Amendments.
See "Risk Factors" beginning on page 3 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.
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) 460-2889 or by telephone at (888) 349-2005.
Risk Factors
The following sets forth the risks and disadvantages to you of the
adoption of the Amendments. You should carefully review these risks:
The Amendments will expand the 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.
The Amendments will Subject the Partnership to 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.
The Amendments may have adverse tax consequences 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. In addition, for certain types of Exempt Organizations
(as defined herein) such as charitable remainder annuity trusts and
charitable remainder unitrusts, the receipt of any "unrelated business
taxable income" ("UBTI") may have material adverse consequences, such as
causing all of their income from all sources in that year to be taxable.
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.
The Amendments make continuation of the Partnership more likely, with
no time frame regarding a sale of any 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 future until all
properties securing the Master Loan are sold. 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, 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.
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 permitted by the Amendments pose risks. 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.
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 August 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. The Amendments
will become effective when the General Partner has received valid consents
from Limited Partners owning at least 454,561.9 Units. Affiliates of the
General Partner own 431,331.7 of the Units and have indicated they will
consent to the Amendments. As a result, consents of Limited Partners not
affiliated with the General Partner who hold at least 2.55% 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 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 Internal Revenue 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 Internal Revenue 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.
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 materially 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 six months ended
June 30, 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, which on a combined
basis secure the Master Loan, was determined by obtaining an appraisal by
an independent third party or by using the net operating income of all of
the collateral properties capitalized at a rate deemed reasonable for the
type of property, adjusted for market conditions, the physical condition of
each property and other factors, and deducting the value of the first
mortgage loans held on each property which are superior to the Master Loan.
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 six months ended June 30,
2001. The General Partner evaluates the combined 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 $12,438,000 for the six months ended June 30, 2001.
Interest income is recognized on the cash basis in accordance with SASF No.
114. At December 31, 2000 and June 30, 2001, such cumulative unrecognized
interest totaling approximately $223,972,000 and $236,410,000 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 $16,280,000.
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 six months ended
June 30, 2001, the Partnership received approximately $7,724,000 and
$72,000 in principal payments on the Master Loan. For the principal
payments received during 2000, $5,500,000 represented net proceeds from the
refinancing of three of CCEP/2's properties during 2000 and approximately
$2,090,000 of funds previously reserved associated with the destruction of
Village Brooke. The remaining $134,000 for 2000 as well as the $72,000
received during the first six months of 2001 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 Windemere 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.
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 $4,868,000 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 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 finance 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 27 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 Master 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 affiliates of the General
Partner. However, it is expected that any sale to an affiliate of the
General Partner 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 Master 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
affiliates of the General Partner 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 $276,117,000 as of
June 30, 2001. However, CCEP/2 does not have sufficient liquid assets to
pay the Master Loan, having only $2,107,000 in cash and cash equivalents as
of June 30, 2001. 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
June 30, 2001, CCEP/2's partners' deficit was approximately $281,661,000.
Although CCEP/2 generated cash from operations of approximately $7,870,000
during the year ended December 31, 2000, approximately $23,722,000 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 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 may continue to operate the
properties. 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 27 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 9 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.
The CCEP/2
--- -------------------------------------------------------------------------------------------
Partnership
-----------
Reimbursement Real Estate Property Investment
Fees & for 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 Apartment Investment
and Management Company ("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 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 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 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 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 "Fractions Rule"). The Partnership does not currently
expect to satisfy the Fractions Rule.
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, and the determination of whether the
Partnership satisfies the requirements under the Fractions Rule, 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, including whether the Fractions Rule is satisfied.
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 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 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 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 August 31, 2001:
Name and Address* of Amount and Nature of
Beneficial Owner Direct Owner Percent of Class
---------------- ------------ ----------------
AIMCO Properties L.P. 177,835.90(1) 19.56%
Cooper River Properties, LLC 67,518.7(2) 7.43%
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.), AIMCO/IPT, Inc. and AIMCO.
Cooper River Properties, LLC 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.
(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 47.45% of the outstanding
Units.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: ConCap Equities, Inc.
General Partner
October 18, 2001
TEXT OF AMENDMENTS
TO THE LIMITED PARTNERSHIP AGREEMENT
OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
Section 1.04 of the Partnership Agreement will be amended and the
following definitions will be added (new language in italics). Section
1.04(a) through (v) will be renumbered accordingly:
"(a) 'Adjusted Capital Account Deficit' shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital
Account as of the end of the relevant Partnership Year, after giving
effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such Partner
is obligated to restore or is deemed to be obligated to restore
pursuant to Treasury Regulations Sections 1.704-2(g) and
1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)."
"(g) 'Capital Account' shall have the meaning specified in Section 3.05."
"(h) 'Code' shall mean the Internal Revenue Code of 1986, as amended."
"(s) 'Nonrecourse Deductions' shall have the meaning set forth in
Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c)."
"(t) 'Nonrecourse Liability' shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(3) of the Treasury
Regulations."
"(v) 'Partners' shall mean the General Partners and the Limited Partners."
"(w) 'Partner Nonrecourse Debt' shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(4)."
"(x) 'Partner Nonrecourse Debt Minimum Gain' shall mean an amount,
with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Treasury Regulations Section 1.704-2(i)(3)."
"(y) 'Partner Nonrecourse Deductions' shall have the meaning set
forth in Treasury Regulations Section 1.704- 2(i)."
"(aa) 'Partnership Minimum Gain' shall have the meaning set forth in
Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d)(1)."
"(bb) 'Partnership Year' shall mean the taxable year of the
Partnership, which shall be the fiscal year ending December 31."
"(hh) 'Treasury Regulations' shall mean the income tax regulations,
including temporary regulations, as may be amended hereafter from
time to time (including corresponding provisions of succeeding income
tax regulations), promulgated under the Code."
Section 1.04(o) of the Partnership Agreement will be amended to
read in its entirety as follows (new language in italics):
"(o) 'Net Profits and Net Losses' shall mean, with respect to any
period, the taxable income or loss, as the case may be, of the
Partnership for such period, determined in accordance with Section
703(a) of the Code (for this purpose, all items of income, gain,
loss, deduction or credit required to be separately stated
pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss); provided, however, that: (i) any income
of the Partnership that is exempt from federal income tax, and not
otherwise taken into account in computing Net Profits or Net
Losses pursuant to this definition shall be added to such income
or loss, and (ii) any expenditures of the Partnership during such
period which are described, or treated under Treasury Regulations
Section 1.704-1(b)(2)(iv)(i) as described, in Section 705(a)(2)(B)
of the Code and not otherwise taken into account in computing Net
Profits or Net Losses shall be subtracted from such taxable income
or loss. Notwithstanding anything to the contrary contained in
this definition, income, gain or loss resulting from the
disposition of, distribution to a Partner of, or depreciation,
amortization or other cost recovery deductions with respect to,
any Partnership asset shall be computed by reference to the book
value of the asset disposed of, distributed or depreciated,
amortized or otherwise recovered, notwithstanding that the
adjusted tax basis of such asset differs from its book value.
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; and 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 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 will be 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)."
Article III of the Partnership Agreement will be amended to add
Section 3.09. The Sections of Article III thereafter will be renumbered
accordingly (new language in italics):
"3.09 Special Allocations. Notwithstanding the foregoing
provisions of this Article III, the following special allocations
("Special Allocations") shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided
in Treasury Regulations Section 1.704-2(f), if there is a
net decrease in Partnership Minimum Gain during a
Partnership Year, then each Partner shall be allocated
items of Partnership income and gain for such Partnership
Year (and, if necessary, for subsequent years) in an
amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain, determined in accordance
with Treasury Regulations Section 1.704-2(g)(2).
Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to
be allocated to each Partner pursuant thereto. The items
to be so allocated shall be determined in accordance with
Treasury Regulations Section 1.704-2. This Section
3.09(a) is intended to comply with the minimum gain
chargeback requirement of Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently
therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2(i), if
there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to Partner Nonrecourse Debt
during any Partnership Year, each Partner shall be
specially allocated items of Partnership income and gain
for such Partnership Year (and, if necessary, for
subsequent Partnership Years) in an amount equal to such
Partner's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain, determined in accordance
with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to
be allocated to each Partner pursuant thereto. The items
to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and
1.704-2(j)(2). This Section 3.09(b) is intended to comply
with the minimum gain chargeback requirements in Treasury
Regulations 1.704-2(i) and shall be interpreted
consistently therewith.
(c) Qualified Income Offset. In the event that any
Partner unexpectedly receives any adjustments,
allocations or distributions described in Treasury
Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), (5) or (6)
with respect to such Partner's Capital Account, items of
Partnership income and gain shall be specially allocated
to each such Partner in an amount and manner sufficient
to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such
member as quickly as possible; provided, however, that an
allocation pursuant to this Section 3.09(c) shall be made
only if and to the extent that such Partner would have an
Adjusted Capital Account Deficit after all other
allocations provided for herein have been tentatively
made as if this Section 3.09(c) were not in this
Agreement.
(d) Nonrecourse Deductions. Any Nonrecourse Deductions
for any Partnership Year shall be specially allocated
ninety-nine percent (99%) to the Limited Partners and one
percent (1%) to the General Partners.
(e) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Partnership Year shall be
allocated to the Partner who bears the economic risk of
loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulations
Section 1.704-2(i).
(f) Limitations on Loss Allocation. No allocation of Net
Loss (or items thereof) shall be made to any Partner to
the extent that such allocation would create or increase
an Adjusted Capital Account Deficit with respect to such
Partner.
(g) Curative Allocation. The allocations set forth in
this Section 3.09 (the "Regulatory Allocations") are
intended to comply with certain regulatory requirements,
including the requirements of Treasury Regulations
Sections 1.704-1(b) and 1.704-2. Notwithstanding the
provisions of Section 3.09(a) and (b) hereof, the
Regulatory Allocations shall be taken into account in
allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent
possible without violating the requirements giving rise
to the Regulatory Allocations, the net amount of such
allocations of other items and Regulatory Allocations to
each Partner shall be equal to the net amount that would
have been allocated to each such Partner if the
Regulatory Allocations had not occurred."
Section 3.07(c) of the Partnership Agreement will be renumbered as
new Section 3.10 and will be retitled as set forth below. The Sections of
Article III thereafter will be renumbered accordingly.
"3.10 Distributions of Distributable cash from
Operations. Distributable Cash From Operations to the extent
deemed available by the General Partners for distribution, shall
be distributed quarterly, as follows: ninety-nine percent (99%) to
the Limited Partners and one percent (1%) to the General Partners;
provided, however, that the General Partners, in the exercise of
reasonable business judgment, may determine to retain in the
Partnership all or any part of such amount to meet the working
capital needs of the Partnership. Distributions, if any, which
exceed Distributable Cash From Operations shall be allocated one
hundred percent (100%) to the Limited Partners. Distributable Cash
From Operations and Distributions which are distributed to the
Limited Partners may, pursuant to generally accepted accounting
principles or on a cash basis, be deemed to be a return of capital
to the extent they exceed the Partnership's net income or cash
flow, respectively. To the extent original Capital Contributions
(including Partnership working capital reserves) are used for
Distributions of Distributable Cash From Operations or
Distributions it would reduce the amount of capital available for
loans to the Borrower and the amount available for Partnership
working capital reserves and would be considered a return of
original Capital Contributions but would not reduce the Limited
Partners' Invested Capital."
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."
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 October 18, 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) 460-2889 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.