-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OJ+ZF2tZ+TdlnC/f2vixIRn3+5eNINDA8WmoZLMeasDyYEvr83N76eRoiz51omHR gb500eTye5dNBwibp0kNMA== 0000720460-97-000002.txt : 19970328 0000720460-97-000002.hdr.sgml : 19970328 ACCESSION NUMBER: 0000720460-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10831 FILM NUMBER: 97564275 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10-K 1 FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-31905, eff 10/26/93.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period.........to......... Commission file number 0-10831 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (Exact name of registrant as specified in its charter) California 94-2744492 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Limited Partnership Units (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] (Amended by Exch Act Rel No. 28869, eff. 5/1/91.) State the aggregate Market Value of the Limited Partnership Units ("Units") held by non-affiliates of the Registrant. 45,756 of Partnership's 199,052 Units are held by non-affiliates. The aggregate market value of Units held by non- affiliates is not determinable since there is no public trading market for Units and transfers of Units are not subject to certain restrictions. PART I Item 1. Business General Consolidated Capital Institutional Properties (the "Partnership" or the "Registrant") was organized on April 28, 1981, as a limited partnership under the California Uniform Limited Partnership Act. On July 23, 1981, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-72384) and commenced a public offering for the sale of $200 million of Units. The Units represent equity interests in the Partnership and entitled the holders thereof (the "Limited Partners") to participate in certain allocations and distributions of the Partnership. The sale of Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or gross proceeds of approximately $200 million to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0- 10831) on January 3, 1982. In accordance with its partnership agreement (the original partnership agreement of the Partnership together with all amendments thereto shall be referred to as the "Agreement"), the Partnership has repurchased and retired a total of 1,297 Units for a total purchase price of $1 million. The Partnership may repurchase any Units, in its absolute discretion, but is under no obligation to do so. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC") was the corporate general partner. In 1988, through a series of transactions Southmark Corporation ("Southmark") acquired control of CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc. ("CEI or the General Partner") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the General Partner was approved by a majority of the Limited Partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock is owned by an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994, and October 1995. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of CCEC, the former corporate general partner of the Partnership. See "Status of the Master Loan" for a description of the loan and settlement of EP's bankruptcy. Through December 31, 1996, the Partnership had advanced a total of approximately $180.5 million to EP and its successor under the Master Loan (as defined in "Status of the Master Loan"). As of December 31, 1996, the balance of the Master Loan, net of the allowance for possible losses, was approximately $52.7 million. EP used the proceeds from these loans to acquire eighteen (18) apartment buildings and four (4) office complexes, which served as collateral for the Master Loan. EP's successor in bankruptcy (as more fully described in "Status of the Master Loan") currently has twelve (12) apartment buildings, and two (2) office complexes. The Partnership acquired The Loft Apartments through foreclosure in November 1990. Prior to that time, The Loft Apartments had been collateral on the Master Loan. The Partnership acquired a multiple-use building, The Sterling Apartment Homes and Commerce Center ("The Sterling") (formerly known as The Carlton House Apartment and Office Building) through a deed-in-lieu of foreclosure transaction on November 30, 1995. The Sterling had been collateral on the Master Loan. For a brief description of the properties refer to "Item 2 - Description of Property." The Registrant has no employees. Management and administrative services are performed by CEI, the General Partner, and by an affiliate of Insignia, an affiliate of the General Partner. The real estate business in which the Partnership is engaged is highly competitive and the Partnership is not a significant factor in this industry. The Registrant's properties are subject to competition from similar properties in the vicinity in which the properties are located. In addition, various limited partnerships have been formed by the General Partner and/or its affiliates to engage in business which may be competitive with the Registrant. Status of the Master Loan Prior to 1989, the Partnership had loaned funds totaling $170.4 million to EP subject to a nonrecourse note with a participation interest (the "Master Loan"), pursuant to the Master Loan Agreement dated July 22, 1981, between the Partnership and EP. The Partnership secured the Master Loan with deeds of trust or mortgages on real property purchased with the funds advanced, as well as by the assignment and pledge of promissory notes from the partners of EP. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"), EP was converted from a California general partnership to a California limited partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole general partner of CCEP and an affiliate of the Partnership. The general partners of EP became limited partners in CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. Interest payments are currently payable quarterly in an amount equal to "Excess Cash Flow." If such Excess Cash Flow payments are less than the current accrued interest during the quarterly period, the unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. If such Excess Cash Flow payments are greater than the current accrued interest, the excess amount is applied to the principal balance of the loan. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matures in November 2000. For 1992, Excess Cash Flow was generally defined in the New Master Loan Agreement as net cash flow from operations after third-party debt service. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing income on the investment in the Master Loan by the amount of CCEP's capital expenditures since such amounts were previously excluded from Excess Cash Flow. Item 2. Description of Property The following table sets forth the Registrant's investment in real estate as of December 31, 1996: Date of Property Purchase Type of Ownership Use The Loft Apartments 11/19/90 Fee ownership. Apartment Raleigh, NC 188 units The Sterling Apartment 12/01/95 Fee ownership. Apartment Homes and Commerce 537 units Center Commercial Philadelphia, PA 101,418 sq.ft. Schedule of Properties: (dollar amounts in thousands) Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis The Loft Apartments $ 6,741 $2,353 5-20 S/L $ 5,665 The Sterling Apartment Homes and Commerce Center 21,841 864 5-25 S/L 21,827 $28,582 $3,217 See "Note A" of the financial statements included in "Item 8." for a description of the Partnership's depreciation policy. Schedule of Mortgages: (dollar amounts in thousands) Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 1996 Rate Amortized Date Maturity The Loft Apartments 1st mortgage $4,498 6.95% (1) 12/2005 $3,903 (1) Payments of approximately $30,000 consisting of principal and interest. Average Annual Rental Rate and Occupancy: Average Annual Average Rental Rates Occupancy Property 1996 1995 1996 1995 The Loft Apartments $ 8,093/unit $ 7,806/unit 95% 91% The Sterling Apartment 10,886/unit 10,185/unit (a) 84% 86% (a) Homes (residential) The Sterling Commerce $7.34/s.f. $6.76/s.f. (a) 68% 64% (a) Center (commercial) (a) Occupancy and rental rates for The Sterling represent December 1995 only as the property was acquired by the Registrant on November 30, 1995. As noted under "Item 1. Description of Business," the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes and commercial buildings in the area. The General Partner believes that the properties are adequately insured. The multi-family residential properties' lease terms are for one year or less. One commercial tenant, an employment agency, leases greater than 10% of the available space. As of January 1, 1997, this tenant is leasing month-to- month while negotiating a new lease. The following is a schedule of the lease expirations of the commercial space in The Sterling for the years beginning 1997 through the maturities of current leases: Number of % of Gross Expirations Square Feet Annual Rent Annual Rent 1997 7 11,998 $214,359 3.68% 1998 2 1,586 23,137 0.40% 1999 2 5,644 65,588 1.12% 2000 1 2,882 37,005 0.63% 2001 1 1,372 35,672 0.61% 2002 0 0 0 0% 2003 0 0 0 0% 2004 0 0 0 0% 2005 2 3,159 60,444 1.04% 2006 1 3,838 65,000 1.11% Real estate taxes and rates in 1996 for each property were (in thousands): 1996 1996 Billing Rate The Loft $ 62 1.22% The Sterling 589 8.18% Item 3. Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial conditions, results of operations, or liquidity of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year ended December 31, 1996, no matter was submitted to a vote of the Unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Units of Limited Partnership and Related Partner Matters There is no established market for the Units and it is not anticipated that any will occur in the foreseeable future. As of December 31, 1996, there were 24,208 holders of record owning an aggregate of 199,052 Units. Distributions of approximately $16,986,000 and approximately $3,007,000 were made to the limited partners in 1996 and 1995, respectively. Additionally, distributions of approximately $30,000 were made to the General Partner in 1996 and 1995. Future distributions will depend on the levels of cash generated from operations, refinancings, property sales, and the availability of cash reserves. Such cash reserves are subject to the requirements of the Agreement which requires that the Partnership have reserves equal to 5% of Net Invested Capital. Item 6. Selected Financial Data The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in "Item 8 - Financial Statements and Supplementary Data."
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 STATEMENTS OF OPERATIONS (in thousands, except unit data) Revenues $ 9,414 $ 5,265 $ 4,490 $ 6,180 $ 8,189 Costs and expenses (8,586) (3,078) (1,496) (1,849) ( 1,892) Provision for impairment loss -- (5,578) -- (11,100) (9,000) Income (loss) from operations 828 (3,391) 2,994 (6,769) (2,703) Gain on sale of securities available for sale -- -- -- 20 -- Net income (loss) $ 828 $ (3,391) $ 2,994 $ (6,749) $ (2,703) Net income (loss) per Limited Partnership Unit: Income (loss) from operations $ 4.12 $ (16.87) $ 14.90 $ (33.67) $ (13.44) Gain on sale of securities available for sale -- -- -- .10 -- Net income (loss) $ 4.12 $ (16.87) $ 14.90 $ (33.57) $ (13.44) Distributions per Limited Partnership Unit $ 85.33 $ 15.10 $ 18.52 $ 28.50 $ 26.25 Limited Partnership Units outstanding 199,052 199,052 199,045 199,046 199,051
AS OF DECEMBER 31, BALANCE SHEETS 1996 1995 1994 1993 1992 (in thousands) Total assets $ 91,657 $106,351 $107,630 $108,442 $120,876
Mortgage notes and interest payable $ 4,525 $ 4,560 $ -- $ -- $ -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. The Sterling is a multiple-use facility which consists of an apartment complex and commercial space. This property was transferred from Consolidated Capital Equity Partners, L.P. ("CCEP") to a wholly owned subsidiary of the Partnership on November 30, 1995. The operations of The Sterling had a significant impact on the results of operations of the Partnership for the year ended December 31, 1996, with revenues of approximately $6,291,000 and expenses of approximately $6,356,000. The operations of The Sterling had an immaterial impact on the results of operations of the Partnership for the year ended December 31, 1995, as the Partnership owned The Sterling for only one month of 1995. Included in the 1995 statement of operations were revenues of approximately $594,000 and expenses of approximately $444,000. Results of Operations 1996 Compared With 1995 The Partnership's net income for the year ended December 31, 1996, was approximately $828,000 compared to a net loss of approximately $3,391,000 for the year ended December 31, 1995. The increase in net income is primarily due to a decrease in the provision for impairment loss on the Master Loan in 1996. The Partnership recorded a $5,578,000 provision for impairment loss on the Master Loan for the year ended December 31, 1995. The primary cause for this impairment loss in 1995 was a reduction in the estimated fair value of the underlying collateral properties in that year. Approximately $5,000,000 of the provision for impairment loss related to The Sterling before it was transferred to the Partnership. Also contributing to the increase in net income was the recognition of a $792,000 increase in the reduction of the provision for impairment losses of the Master Loan due to an increase in fair market value of the underlying assets that collateralize the Master Loan in 1996. In addition, general and administrative expenses decreased for the year ended December 31, 1996, compared to the corresponding period of 1995. This decrease was the result of increased printing costs incurred in 1995, related to the printing of additional 10-K's for investors. Also, there were additional costs associated with the combined efforts of the Dallas and Greenville offices during the transition period that ended June 30, 1995. The increased costs related to the transition efforts were incurred to minimize any disruption in the 1994 year-end reporting function including K-1 preparation and distribution. Additionally, the Partnership incurred approximately $772,000 in transfer fees related to the transfer of The Sterling from CCEP to the Partnership during the year ended December 31, 1995. Offsetting these decreases in general and administrative costs were increases in professional fees incurred for a valuation of The Sterling and a successful tax appeal at The Sterling. Other income increased during the year ended December 31, 1996, due to increased interest income resulting from higher cash balances due to the proceeds received from the December 1995 financing of The Loft, and also from the principal payments received on the Master Loan in December 1995. Offsetting the increases in net income noted above for the year ended December 31, 1996, compared to the corresponding period in 1995, was a decrease in interest income recorded on the investment in Master Loan to affiliate, the transfer of The Sterling from CCEP, which resulted in significant increases in rental income, operating expenses and depreciation expense for the year ended December 31, 1996, and an increase in interest expense. The decrease in interest income on the investment in Master Loan is the result of a decrease in interest payments as required by the loan agreement. The Sterling reported a net loss of approximately $65,000 during the year ended December 31, 1996. The transfer of The Sterling from CCEP resulted in significant increases in rental income, which were more than offset by significant increases in operating expenses, and depreciation expense. Operating expenses at The Sterling were significantly higher during 1996 due to the major ongoing renovation project. The Loft was also a contributing factor in offsetting the increase in net income due to an increase in interest expense. The increase in interest expense resulted from the financing of The Lofts in December 1995. Because this property did not have a mortgage balance prior to December 1995, interest expense during the year ended December 31, 1995 was minimal. Included in maintenance expense for the year ended December 31, 1996, is approximately $534,000 of major repairs and maintenance comprised primarily of major landscaping, exterior painting, and interior and exterior building improvements. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. 1995 Compared With 1994 The Partnership's net loss for the year ended December 31, 1995, was approximately $3,391,000 compared to net income of approximately $2,994,000 for the year ended December 31, 1994. The increase in net loss is primarily due to the $5,578,000 increase in the provision for impairment loss on the Master Loan. The primary cause of the increase in the provision for impairment loss on the Master Loan was a reduction in the estimated fair value of the underlying collateral properties. Also contributing to the increased net loss was an increase in operating expenses at The Loft as a result of higher maintenance expenses and an increase in general and administrative expenses. The increase in maintenance expense is the result of interior and exterior painting projects, patio fencing, exterior lighting, window renovations, curb and sidewalk repair, and major landscaping. General and administrative expenses increased due to increased insurance costs along with the additional costs involved in printing the 1994 10-K's for investors. There were also additional costs associated with the combined efforts of the Dallas and Greenville offices during the transition period that ended June 30, 1995. The increased costs related to the transition efforts were incurred to minimize any disruption in the year-end reporting function including K-1 preparation and distribution. Additionally, the Partnership incurred approximately $772,000 in transfer fees related to the transfer of The Sterling from CCEP to the Partnership. Depreciation expense increased during 1995 due to the purchase of additional fixed assets in 1995. Interest expense increased as a result of the financing of The Lofts in December 1995. This property did not have a mortgage balance prior to December 1995 and as a result had no interest expense. Also, other income decreased due to a settlement of suits against Southmark in 1994 resulting in the Partnership receiving its pro rata share of the claims filed in Southmark's bankruptcy proceeding. No such event occurred in 1995. Partially offsetting these decreases in net income is an increase in rental income due to higher rental rates which more than offset the decrease in occupancy at The Lofts. In connection with the transfer of The Sterling to Kennedy Boulevard Associates, L.P. ("KBA-I"), a wholly owned subsidiary of the Partnership, the General Partner had a valuation performed on the property to determine its estimated fair value. The asset had previously been recorded on the books of CCEP and for valuation for the Master Loan based upon appraisals performed by a third party. The last appraisal valued the property as of May 12, 1995. Based on its ongoing evaluation of the condition of the property, the General Partner concluded that additional information received during the fourth quarter of 1995 regarding the extent of deferred maintenance and improvements needed to the property indicated that a $5,000,000 write-down was needed to reduce the property to its estimated net realizable value. CCEP recorded this write-down during the fourth quarter before the property was transferred to KBA-I. As this property was collateral for the Master Loan and the value of the Master Loan is recorded based upon the estimated fair value of the underlying collateral, the Partnership recorded an increase in the Provision for Impairment Loss on the Master Loan to affiliate due to this impairment. Liquidity and Capital Resources At December 31, 1996, the Partnership had unrestricted cash of approximately $12,348,000 versus approximately $26,122,000 at December 31, 1995. Net cash provided by operating activities decreased primarily due to the increase in net income after adjustment for the provision for impairment loss on investment in Master Loan to affiliates in 1995 as described above. Also, due from affiliates decreased during the year ended December 31, 1995. No such activity occurred during the year ended December 31, 1996. Net cash provided by investing activities decreased as a result of a decrease in principal receipts on the Master Loan. These principal receipts on the Master Loan in 1995 were due primarily to the refinancing proceeds received from CCEP. The decrease in cash provided by investing activities also resulted from an increase in property improvements and replacement due to the capital improvements at The Sterling as noted above. Partially offsetting the decrease in cash provided by investing activities was a decrease in advances on the Master Loan. Cash used in financing activities increased due to an increase in distributions to partners which was partially offset by a decrease in proceeds from long-term borrowings, which resulted from the financing of The Loft in December 1995. At December 31, 1995, the Partnership had unrestricted cash of approximately $26,122,000 versus approximately $1,520,000 at December 31, 1994. Net cash provided by operating activities decreased primarily due to a decrease in net income as noted above and due to an increase in others assets. These changes were partially offset by a decrease in due from affiliate and an increase in accounts payable. Cash provided by investing activities increased as a result of principal receipts on the Master Loan, which was partially offset by an increase in property improvements an replacements and an increase in advances on the Master Loan. Principal receipts on the Master Loan in 1995 were due primarily to the refinancing proceeds received from CCEP. Net cash provided by financing activities increased due to the financing of The Loft. The Partnership has budgeted approximately $7.9 million for deferred maintenance and capital improvements to be made to The Sterling during 1997. These programs will be paid by existing cash and from cash generated by property operations and debt service on the Master Loan. The major capital improvements are for exterior renovation, elevator rehabilitation, residential, and commercial common area renovations. As of December 31, 1996, approximately $6.1 million had been spent on these programs. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $4,498,000 requires monthly principal and interest payments and requires a balloon payment on December 1, 2005, at which time the property will either be refinanced or sold. Distributions of approximately $16,986,000 were made to the limited partners during the year ended December 31, 1996. A matching distribution of approximately $30,000 was made to the General Partner. Included in these amounts are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Partnership's investment property located in that state. Distributions of approximately $3 million were made to the limited partners during the year ended December 31, 1995. Approximately $30,000 was distributed to the General Partner during that same period. Included in these amounts are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Partnership's investment property located in that state. Future cash distributions will depend on the levels of cash generated from operations, Master Loan interest income, capital expenditure requirements, property sales, and the availability of cash reserves. The Partnership is required by the Partnership Agreement to maintain working capital reserves for the contingencies of not less than 5% of Net Invested Capital, as defined by the Partnership Agreement. Reserves, including cash and cash equivalents and securities available for sale totaling approximately $12.7 million, were greater than the reserve requirement of approximately $7.3 million at December 31, 1996. CCEP Property Operations The Partnership invested approximately $367,000 in CCEP during the year ended December 31, 1996, as additional advances under the Master Loan. CCEP used the funds to pay for deferred maintenance and capital improvements on certain properties which collateralize the Master Loan. A portion of the advance was used to pay additional expenses related to the December 1995 financing of six of CCEP's investment properties. Also, a portion of the advance was used to pay taxes on behalf of a wholly owned subsidiary of CCEP. For the year ended December 31, 1996, CCEP's net loss totaled approximately $29 million on total revenues of approximately $20 million. CCEP recognizes interest expense on the New Master Loan Agreement obligation according to the note terms, although payments to the Partnership are required only to the extent of Excess Cash Flow, as defined therein. During the year ended December 31, 1996, CCEP's statement of operations includes total interest expense attributable to the Master Loan of approximately $29.5 million, all of which represents interest accrued in excess of required payments. During the year ended December 31, 1996, CCEP made an "Excess Cash Flow" principal payment of approximately $1.4 million to the Partnership. CCEP is expected to continue to generate operating losses as a result of such interest accruals and noncash charges for depreciation. During the year ended December 31, 1996, the Partnership received approximately $2,243,000 as principal payments on the Master Loan. Approximately $101,000 was due to the return of a real estate tax escrow set up at the time of the December 1995 financing of a certain CCEP investment property. This escrow was held until CCEP was able to provide proof of payment to the mortgage lender. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement, accounted for approximately $123,000. Approximately $1,432,000 received was due to an "Excess Cash Flow" payment from CCEP as described above. CCEP remitted approximately $587,000 of net cash proceeds from the sale of Lakeview Office Tower to the Partnership to pay down the Master Loan. Item 8. Financial Statements and Supplementary Data CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES LIST OF FINANCIAL STATEMENTS Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Institutional Properties We have audited the accompanying consolidated balance sheets of Consolidated Capital Institutional Properties as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Institutional Properties as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Greenville, South Carolina February 4, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Consolidated Capital Institutional Properties: We have audited the accompanying statements of operations, partners' capital (deficit) and cash flows of Consolidated Capital Institutional Properties (a California limited partnership) for the year ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations, changes in partners' capital (deficit) and cash flows of Consolidated Capital Institutional Properties for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/Arthur Andersen, LLP Dallas, Texas March 23, 1995 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) DECEMBER 31, Assets 1996 1995 Cash and cash equivalents: Unrestricted $ 12,348 $ 26,122 Restricted-tenant security deposits 318 335 Securities available for sale 7 5,264 Other assets 935 1,444 Net investment in Master Loan 93,370 95,246 Less: Allowance for impairment loss (40,686) (41,478) 52,684 53,768 Investment properties: Land 3,620 3,620 Buildings and related personal property 24,962 17,756 28,582 21,376 Less: accumulated depreciation (3,217) (1,958) 25,365 19,418 $ 91,657 $106,351 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 1,903 $ 368 Tenant security deposits 317 323 Distributions payable 324 324 Mortgage note and interest payable 4,525 4,560 7,069 5,575 Partners' Capital (Deficit) General Partner (380) (358) Limited Partners - 199,052 units outstanding in 1996 and 1995 84,968 101,134 84,588 100,776 $ 91,657 $106,351 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data) FOR THE YEARS ENDED December 31, 1996 1995 1994 Revenues: Rental income $ 7,686 $ 2,069 $ 1,312 Interest income on investment in Master Loan to affiliate -- 2,502 2,448 Reduction in provision for impairment loss on investment in Master Loan to affiliate 792 -- -- Other income 936 694 730 Total revenues 9,414 5,265 4,490 Costs and expenses: Operating 6,305 1,154 599 General and administrative 690 1,456 480 Depreciation and amortization 1,265 453 417 Interest 326 15 -- Provision for impairment loss on Master Loan to affiliate -- 5,578 -- Total expenses 8,586 8,656 1,496 Net income (loss) $ 828 $(3,391) $ 2,994 Net income (loss) allocated to general partner $ 8 $ (34) $ 30 Net income (loss) allocated to limited partners 820 (3,357) 2,964 $ 828 $(3,391) $ 2,994 Income (loss) per Limited Partnership Unit $ 4.12 $(16.87) $ 14.90 Distributions per Limited Partnership Unit $ 85.33 $ 15.10 $ 18.52 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 200,342 $ 1 $200,342 $200,343 Partners' capital (deficit) at December 31, 1993 199,046 (287) 108,220 107,933 Distributions (37) (3,686) (3,723) Net income for the year ended December 31, 1994 30 2,964 2,994 Partners' capital (deficit) at December 31, 1994 199,045 (294) 107,498 107,204 Distributions (30) (3,007) (3,037) Net loss for the year ended December 31, 1995 (34) (3,357) (3,391) Partners' capital (deficit) at December 31, 1995 199,052 (358) 101,134 100,776 Distributions (30) (16,986) (17,016) Net income for the year ended December 31, 1996 8 820 828 Partners' capital (deficit) at December 31, 1996 199,052 $ (380) $ 84,968 $ 84,588 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) FOR THE YEARS ENDED December 31, 1996 1995 1994 Cash flows from operating activities: Net income (loss) $ 828 $(3,391)$ 2,994 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of lease commissions and loan costs 1,277 453 417 Amortization of discount on securities available for sale -- -- 2 Reduction in provision for impairment loss on investment in Master Loan to affiliates (792) -- -- Provision for impairment loss on investment in Master Loan to affiliates -- 5,578 -- Receipt of Southmark stock -- -- (7) Changes in accounts: Restricted cash 18 (301) (26) Due from affiliates -- 935 (376) Other assets 490 (1,243) 99 Accounts payable 86 337 (68) Interest payable 12 -- -- Distributions payable -- -- (8) Tenant security deposit liabilities (6) 276 -- Net cash provided by operating activities 1,913 2,644 3,027 Cash flows from investing activities: Property improvements and replacements (5,757) (274) (27) Proceeds from sale of securities available for sale 5,257 5,180 5,461 Purchase of securities available for sale -- (2,115) (3,392) Principal receipts on Master Loan 2,243 21,661 -- Advances on Master Loan (367) (4,002) (40) Net cash provided by investing activities 1,376 20,450 2,002 Cash flows from financing activities: Distributions to partners (17,016) (3,037) (3,723) Payments on notes payable (47) -- -- Proceeds from long-term borrowings -- 4,545 -- Net cash (used in) provided by financing activities (17,063) 1,508 (3,723) Net (decrease) increase in cash and cash equivalents (13,774) 24,602 1,306 Cash and cash equivalents, at beginning of year 26,122 1,520 214 Cash and cash equivalents, at end of year $ 12,348 $26,122 $ 1,520 Supplemental disclosure of cash flow information: Cash paid for interest $ 302 $ -- $ -- SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY Property Improvements and Replacements Accounts payable was adjusted approximately $1,449,000 at December 31, 1996, for non-cash amounts in connection with property improvements and replacements. See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Organization and Summary of Significant Accounting Policies Organization: Consolidated Capital Institutional Properties (the "Partnership"), a California limited partnership, was formed on April 28, 1981, to lend funds through nonrecourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, Consolidated Capital Equity Partners, ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former corporate general partner. Through December 31, 1996, the Partnership had advanced a total of approximately $180.5 million to EP and its successor under the Master Loan. Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the corporate general partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and replaced CCEC as managing general partner in all 16 partnerships. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"). EP was converted from a California general partnership to a California limited partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole general partner of CCEP and an affiliate of the Partnership. The general partners of EP became limited partners in CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock is owned by an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994 and October 1995. At December 31, 1996, Insignia and affiliates own a total of 45,756 Units of the Partnership. The Partnership owns and operates one apartment property and one multiple-use building in North Carolina and Pennsylvania, respectively. Also, the Partnership is the holder of a note receivable which is collateralized by apartment and commercial properties located throughout the United States. Principles of Consolidation: The Partnership's financial statements for the year ended December 31, 1996, include the accounts of Kennedy Boulevard Associates I, L.P., a Pennsylvania limited partnership ("KBA-1, L.P."), which is 98% owned by the Partnership and three other affiliated limited and general partnerships all of which are 99% owned by the Partnership. The Partnership's financial statements for the year ended December 31, 1995, include the accounts of KBA-I, L.P. and four other affiliated limited and general partnerships and three affiliated corporations, all of which were ultimately wholly-owned by the Partnership. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce Center ("Sterling"). All intercompany transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Restricted Escrows: Replacement Reserve Account: At the time of the December 15, 1995, refinancing, approximately $60,000 of the proceeds were designated for a "replacement reserve fund" for certain capital replacements (as defined in the Replacement Reserve Agreement) at The Lofts. At December 31, 1996, the balance remaining was approximately $53,000 and is included in other assets. Repair Escrow Account: In addition to the Replacement Reserve Account, approximately $269,000 of the refinancing proceeds were designated for a "repair escrow" to cover necessary repairs and replacements to be completed at The Lofts within one year of closing. At December 31, 1996, the balance was approximately $10,000 and is included in other assets. All excess funds will be transferred into the Replacement Reserve Account. Escrows for Taxes: These funds are held by the Partnership and are designated for the payment of real estate taxes and are included in other assets. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment and commercial properties and related personal property. For Federal income tax purposes, the modified accelerated cost recovery method is used. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 to 15 years. Loan Costs: Loan costs of approximately $124,000, less accumulated amortization of approximately $13,000, are included in other assets and are being amortized on a straight-line basis over the life of the loan. Cash and Cash Equivalents: Unrestricted - Unrestricted cash includes cash on hand and in banks, certificates of deposit, and money market funds with original maturities less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted cash - tenant security deposits - The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $265,000 and $40,000 for the years ended December 31, 1996 and 1995, respectively. Investment Properties: Prior to 1995, investment properties were carried at the lower of cost or estimated fair value, which was determined using the higher of the property's non-recourse debt amount, when applicable, or the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. During 1995, the Partnership adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Investment in Master Loan: Beginning in 1995, the Partnership adopted "FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan." Under the new standard, the allowance for credit losses related to loans that are identified for evaluation in accordance with "Statement 114" is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The effect of adoption was not material. Prior to 1995, the allowance for credit losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. Investments: The General Partner determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Presently, all of the Partnership's investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, reported in a separate component of partner's capital. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available- for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with "FASB Statement No. 13, Accounting for Leases." Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. For all other leases, minimum rents are recognized over the terms of the leases. The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on these leases. In addition, management finds it necessary to offer rental concessions during particularly slow months or in responseto heavy competition from other similar complexes in the area. Concessions are charged to expenses as incurred. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1996 and 1995, lease commissions totaled approximately $38,000, with accumulated amortization of approximately $16,000 and $10,000, respectively. Lease commissions are included in other assets. Income Taxes: No provision has been made in the financial statements for Federal income taxes because, under current law, no Federal income taxes are paid directly by the Partnership. The Unit holders are responsible for their respective shares of Partnership net income or loss. The Partnership reports certain transactions differently for tax than for financial statement purposes. The tax basis of the Partnership's assets and liabilities is approximately $80.6 million greater than the assets and liabilities as reported in the financial statements. Partners' Capital (Deficit): The Partnership Agreement ("Agreement") provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to the Limited Partners by the number of Units outstanding. Per Unit information has been computed based on 199,052, 199,052 and 199,045 Units outstanding in 1996, 1995 and 1994, respectively. Fair Value: In 1995, the Partnership implemented "FASB Standard No. 107, Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. The carrying amount of the Partnership's net investment in the Master Loan approximated fair value due to the fact that it has been valued based on the fair value of the underlying collateral. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 information to conform to the 1996 presentation. Note B - Securities Available for Sale Investments, stated at cost, consist of the following at December 31, 1996 (in thousands): Interest Face Maturity Rate Amount Cost Date Southmark Corporation Redeemable Series A Preferred Stock N/A $ 7 $ 7 N/A Investments stated at cost consist of the following at December 31, 1995 (in thousands): Interest Face Maturity Rate Amount Cost Date U.S. Treasury Note 7.38% $2,600 $2,591 May 15, 1996 U.S. Treasury Note 7.88% 2,647 2,660 July 15, 1996 Southmark Corporation Redeemable Series A Preferred Stock N/A 7 7 N/A Accrued interest 6 $5,264 The Partnership's investments are classified as available-for-sale. The General Partner believes that the market value of the investments is approximately the same as the cost. Note C - Net Investment in Master Loan At December 31, 1996, the recorded investment in Master Loan is considered to be impaired under "Statement 114." The Partnership measures the impairment of the loan based upon the estimated fair value of the collateral due to the fact repayment of the loan is expected to be provided solely by the collateral. For the year ended December 31, 1995, the Partnership recorded approximately $5,578,000 in expense based upon a decrease in the fair value of the collateral. For the year ended December 31, 1996, the Partnership recorded approximately $792,000 in income based upon an increase in the fair value of the collateral. In connection with the transfer of The Sterling to Kennedy Boulevard Associates, L.P. ("KBA-I"), a 98% owned subsidiary of the Partnership, the General Partner had a valuation performed on the property to determine its estimated fair value. The asset had previously been recorded on the books of CCEP and for valuation for the Master Loan based upon appraisals performed by a third party. The last appraisal valued the property as of May 12, 1995. Based on its ongoing evaluation of the condition of the property, the General Partner concluded that additional information received during the fourth quarter of 1995 regarding the extent of deferred maintenance and improvements needed to the property indicated that a $5,000,000 write-down was needed to reduce the property to its estimated net realizable value. CCEP recorded this write-down during the fourth quarter of 1995, before the property was transferred to KBA-I. As this property was collateral for the Master Loan and the value of the Master Loan is recorded based upon the estimated fair value of the underlying collateral, the Partnership recorded an increase in the Provision for Impairment Loss on the Master Loan to affiliate due to this impairment. Interest due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements, totaled approximately $29.5 million, $27.4 million and $24.6 million for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995, such cumulative unrecognized interest totaling approximately $167.7 million and $138.2 million was not included in the balance of the investment in Master Loan. In addition, six of the properties are collateralized by first mortgages totaling approximately $23,393,000 which are superior to the Master Loan. During 1995, the Partnership advanced approximately $4 million to CCEP as an advance on the Master Loan. CCEP used the advances to pay for deferred maintenance and capital improvements on the properties which collateralize the Master Loan. A portion of the advance was used to pay off third party debt on certain of the properties which collateralize the Master Loan. During 1996, the Partnership advanced approximately $367,000 to CCEP as an advance on the Master Loan. CCEP used the advances to pay for deferred maintenance and capital improvements on the properties which collateralize the Master Loan. Terms of the New Master Loan Agreement Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. The interest rates for each of the years ended December 31, 1996, 1995, and 1994, was 12.5%. These payments are currently payable quarterly in an amount equal to "Excess Cash Flow." Unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matures in November 2000. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing income on the investment in Master Loan by the amount of CCEP's capital expenditures, since such amounts were previously excluded from Excess Cash Flow. On November 30, 1995, New Carlton House Partners, Ltd., a Pennsylvania limited partnership ("NCHP"), owner of a multi-use apartment/commercial building known as The Sterling, the Partnership, Philly Associates Inc., a Texas Corporation ("Philly"), and Kennedy Boulevard Associates, L.P., a Pennsylvania limited partnership ("KBA-I, L.P.") (an affiliate of CCIP) entered into a consensual Transfer Agreement whereby certain mortgage notes held by CCEP and Philly that are secured by The Sterling were assigned to KBA-I, L.P. As NCHP is unable to repay the debt, the parties agreed that in order to avoid the additional costs and expenses of litigation or a judicial foreclosure, that NCHP transfer The Sterling to KBA-I, L.P. by a deed-in-lieu of foreclosure in full satisfaction of its obligations on the mortgages assigned to KBA-I, L.P. As an additional matter, the transfer of The Sterling to KBA-I, L.P. shall be in satisfaction of a portion of the amounts owed by CCEP to the Partnership under the Master Loan Agreement. NCHP transferred The Sterling to KBA-I, L.P. and the Partnership recorded the transfer on November 30, 1995. The investment in Master Loan consists of the following: AS OF DECEMBER 31, 1996 1995 (in thousands) Master Loan funds advanced, at beginning of year $95,246 $127,686 Master Loan funds advanced 367 4,002 Principal receipts on Master Loan (2,243) (20,905) Principal reduction due to The Sterling acquisition, including cash received of $756,000 in 1995 -- (15,537) Master Loan funds advanced, at end of year $93,370 $ 95,246 The allowance for impairment loss on Master Loan to affiliates consists of the following: AS OF DECEMBER 31, 1996 1995 1994 (in thousands) Allowance for impairment loss on Master Loan to affiliates, beginning of year $41,478 $35,900 $35,900 (Reduction) provision for impairment loss (792) 5,578 -- Allowance for impairment loss on Master Loan to affiliates, end of year $40,686 $41,478 $35,900 Note D - Mortgage Note Payable On December 15, 1995, the Partnership financed The Lofts. The principal terms of mortgage note payable are as follows (in thousands): Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1996 Interest Rate Date Maturity The Lofts $ 4,498 $ 30 6.95% 12/1/05 $ 3,903 The estimated fair value of the Partnership's aggregate debt approximates its carrying value. This estimate is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1996, are as follows (in thousands): YEAR ENDED NOTES DECEMBER 31, PAYABLE 1997 $ 50 1998 53 1999 57 2000 62 2001 66 Thereafter 4,210 Total $4,498 Note E - Related Party Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for management and administration of all Partnership activities. The Partnership paid property management fees based upon collected gross rental revenues for property management services as noted below for the years ended December 31, 1996, 1995 and 1994. For the year ended December 31, 1994, a portion of such property management fees were paid to Coventry Properties, Inc. ("Coventry"), an affiliate of the General Partner, for day-to-day property management services and a portion was paid to Partnership Services, Inc. ("PSI") for advisory services related to day-to-day property operations. In late December 1994, an affiliate of Insignia Financial Group, Inc. ("Insignia") assumed day-to-day property management responsibilities for all of the Partnership's properties. Fees paid to affiliates of Insignia during the years ended December 31, 1996 and 1995, and fees paid to Coventry and PSI for the year ended December 31, 1994, are reflected in the following table. The Partnership Agreement ("Agreement") also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of Partnership activities. In 1996 and 1995, the General Partner and its current and former affiliates, which includes Coventry for the year ended December 31, 1994, received reimbursements as reflected in the following table: For the Year Ended December 31, 1996 1995 1994 (in thousands) Property management fees $409 $120 $ 65 Reimbursement for services of affiliates (1) 485 305 226 (1) Included in "reimbursement for services of affiliates" for 1996 is approximately $219,000 in reimbursements for construction oversight costs. As of December 31, 1995, the Partnership had paid approximately $15,000 and had accrued approximately $13,000 of reimbursements to an affiliate of the General Partner related to the refinancing of The Lofts, which is included in Reimbursement for services of affiliates above. On July 1, 1995, the Partnership began insuring its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. At December 31, 1996, Insignia was the beneficial owner of 45,756 of the Partnership's limited partnership units. Note F - Commitments, Contingencies and Subsequent Events The Partnership is required by the Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Agreement. In the event expenditures are made from this reserve, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents and securities available for sale, totaling approximately $12.7 million, were greater than the reserve requirement of approximately $7.3 million at December 31, 1996. The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner believes that all such matters are adequately covered by insurance and will be resolved without a material adverse effect upon the business, financial condition, results of operations, or liquidity of the Partnership. Note G - Real Estate and Accumulated Depreciation (dollar amounts in thousands)
Initial Cost To Partnership Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition The Lofts Apartments $ 4,498 $ 1,053 $ 4,147 $1,541 Raleigh, NC The Sterling Apartment Homes -- 2,567 12,341 6,933 and Commerce Center Philadelphia, PA $ 4,498 $ 3,620 $16,488 $8,474
Gross Amount At Which Carried at December 31, 1996 Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years The Lofts $ 1,053 $ 5,688 $ 6,741 $2,353 1975 11/19/90 5-20 The Sterling 2,567 19,274 21,841 864 1961 12/01/95 5-25 Total $ 3,620 $24,962 $28,582 $3,217
Reconciliation of real estate and accumulated depreciation: Years Ended December 31, 1996 1995 1994 (in thousands) REAL ESTATE: Balance, real estate at beginning of year $21,376 $ 6,255 $ 6,228 Additions 7,206 15,121 27 Balance, real estate at end of year 28,582 $ 21,376 $ 6,255 ACCUMULATED DEPRECIATION: Balance, depreciation of real estate at beginning of year $ 1,958 $ 1,505 $ 1,088 Depreciation of real estate 1,259 453 417 Balance, depreciation of real estate at at end of year $ 3,217 $ 1,958 $ 1,505 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1996 and 1995, is approximately $29,491,000 and approximately $26,404,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 and 1995, is approximately $1,999,000 and approximately $1,012,000 respectively. Note I - Revenues Rental income on the commercial property leases is recognized on a straight-line basis over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): YEAR ENDING DECEMBER 31, 1997 $ 412 1998 270 1999 248 2000 177 2001 166 Thereafter 572 $ 1,845 There is no assurance that this rental income will continue at the same level when the current leases expire. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure As of May 3, 1995, Arthur Andersen LLP, the independent accountant previously engaged as the principal accountant to audit the financial statements of the Registrant, was dismissed. As of the same date, the firm of Ernst & Young LLP was engaged to provide that service for the Registrant. During the Partnership's two most recent fiscal years and any subsequent interim period preceding the change, there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreements in connection with its report. PART III Item 10. Directors and Executive Officers of the General Partner of the Partnership The names of the directors and executive officers of ConCap Equities, Inc. ("CEI"), the Partnership's General Partner as of December 31, 1996, their ages and the nature of all positions with CEI presently held by them are as follows: NAME OF INDIVIDUAL POSITION IN CEI AGE William H. Jarrard, Jr. President 50 Ronald Uretta Vice President/Treasurer 41 John K. Lines Vice President/Secretary 37 Kelley M. Buechler Assistant Secretary 39 Martha L. Long Controller 37 William H. Jarrard, Jr. has been Managing Director - Partnership Administration of Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Vice President/Treasurer of CEI since December 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Insignia's Chief Operating Officer. He also served as Secretary from January 1992 to 1994 and as Insignia's Chief Financial Officer from January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as the Chief Financial Officer and Controller of Metropolitan Asset Group. John K. Lines has been Vice President and Secretary of CEI since December of 1994, Secretary of the MAE subsidiaries since August 1994, General Counsel of Insignia since June 1994, and General Counsel and Secretary of Insignia since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an associate with Squire Sanders & Dempsey in Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of CEI since December 1994, Assistant Secretary of the MAE subsidiaries since January 1992, and Assistant Secretary of Insignia since January 1991. During the five years prior to joining Insignia in 1991, she served in a similar capacity for U.S. Shelter. Martha L. Long has been Controller of CEI since December 1996 and Senior Vice President - Finance and Controller of Insignia since January 1997. In June 1994, Ms. Long joined Insignia as its Controller and was promoted to Senior Vice President - Finance in January 1997. Prior to that time, she was Senior Vice President and Controller of The First Savings Bank, FSB in Greenville, South Carolina. Market Ventures, L.L.C. ("Ventures") and Liquidity Assistance, L.L.C. ("Liquidity") delinquently reported 118 and 113 transactions, respectively as of December 31, 1996 on a Form 5 filed in January 1997, with respect to the entities' purchases of Units of Limited Partner Interest of the Partnership. Each of Insignia Financial Group, Inc., Insignia Commercial Group, Inc. and Andrew L. Farkas also delinquently reported the same transactions on a Form 5 by virtue of their status as affiliates of Ventures and Liquidity, through which they may be deemed to be beneficial owners of the securities owned by such entities. Item 11. Executive Compensation No remuneration was paid to the General Partner nor any of its directors and officers during the year ended December 31, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of March 1997, no person was known to CEI to own of record or beneficially more than 5 percent (5%) of the Units of the Partnership: NUMBER OF PERCENT NAME AND ADDRESS UNITS OF TOTAL Insignia affiliates 46,848.90 23.54% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 The units above are held by Insignia Properties, L.P. who owns 46,517.40 units (23.37% of outstanding units) and other affiliated entities who hold nominal amounts of units. (b) Beneficial Owners of Management Except as described in "Item 12(a)" above, neither CEI nor any of the directors, officers or associates of CEI own any Units of the Partnership of record or beneficially. (c) Changes in Control Beneficial Owners of CEI As of December 31, 1996, the following persons were known to CEI to be the beneficial owners of more than 5 percent (5%) of its common stock: NUMBER OF PERCENT NAME AND ADDRESS CEI SHARES OF TOTAL GII Realty, Inc. 100,000 100% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 GII Realty, Inc. is an affiliate of Insignia. (See "Item 1")> Item 13. Certain Relationships and Related Transactions Transactions with Current Management and Others The Registrant has a property management agreement with Insignia Residential Group, L.P. pursuant to which Insignia Residential Group, L.P., has assumed direct responsibility for day-to-day management of the Partnership's properties. This service includes the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel, payment of operating expenses, etc. Insignia Residential Group, L.P. receives a property management fee equal to 5% of apartment revenues. During the fiscal year ended December 31, 1996, Insignia Residential Group, L.P. received approximately $409,000 in fees for property management. PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 2. Schedules All schedules are omitted because they are not required, are not applicable or the financial information is included in the financial statements or notes thereto 3. Exhibits S-K REFERENCE SEQUENTIAL NUMBER DOCUMENT DESCRIPTION PAGE NUMBER 3 Certificates of Limited Partnership, as N/A amended to date. (Incorporated by refer- ence to the Annual Report on Form 10-K for the year ended December 31, 1991 ("1991 Annual Report"). 10.1 Amended Loan Agreement dated November N/A 15, 1990 (the "Effective Date"), by and between the Partnership and EP (Incorpora- ted by reference to the Annual Report on Form 10-K for the year ended December 31, 1990 ("1990 Annual Report"). 10.2 Assumption Agreement as of the Effective N/A Date, by and between EP and CCEP (Incor- porated by reference to the 1990 Annual Report). 10.3 Assignment of Claims as of the Effective N/A Effective Date, by and between the Partner- ship and EP (Incorporated by reference to the 1990 Annual Report). 10.4 Assignment of Partnership Interests in N/A Western Can, Ltd., by and between EP and CCEP (Incorporated by reference to the 1990 Annual Report). 10.5 Bill of Sale and Assignment dated October 23, N/A 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.6 Assignment and Assumption Agreement dated N/A dated October 23, 1990, by and between CCMLP and Metro ConCap, Inc. (300 series of Property Management contracts). (Incorporated by reference to the 1990 Annual Report). 10.7 Construction Management Cost Reimbursement N/A Agreement dated January 1, 1991, by and between the Partnership and Metro ConCap, Inc. (Incorporated by reference to the 1991 Annual Report). 10.8 Investor Services Agreement dated October 23, N/A 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.9 Assignment and Assumption Agreement (Investor N/A Services Agreement) dated October 23, 1990 by and between CCEC and ConCap Services Company (Incorporated by reference to the 1990 Annual Report). 10.10 Letter of Notice dated December 20,1991, from N/A Partnership Services, Inc. ("PSI") to the Partner- ship regarding the change in ownership and dissolution of ConCap Services Company whereby PSI assumed the Investor Services Agreement. (Incorporated by reference to the 1991 Annual Report). 10.11 Financial Services Agreement dated October 23, N/A 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.12 Assignment and Assumption Agreement (Financial N/A Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Capital Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.13 Letter of Notice dated December 20, 1991, from N/A PSI to the Partnership regarding the change in ownership and dissolution of ConCap Capital Company whereby PSI assumed the Financial Services Agreement. (Incorporated by reference to the 1991 Annual Report). 10.14 Property Management Agreement No. 503 N/A dated February 16, 1993, by and between the Partnership, New Carlton House Partners, Ltd. and Coventry Properties, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992). 10.15 Property Management Agreement No. 508 dated N/A June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.16 Assignment and Assumption Agreement as to N/A Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.17 Multifamily Note dated November 30, 1995 between Consolidated Capital Institutional Properties, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holding Inc. 11 Statement regarding computation of Net Income 22 per Limited Partnership Unit (Incorporated by reference to Note 1 of Item 8 - Financial State- ments of this Form 10-K). 16 Letter, dated August 12, 1992, from Ernst & Young N/A to the Securities and Exchange Commission regard- ing change in certifying accountant. (Incorporated by reference to Form 8-K dated August 6, 1992). 27 Financial Data Schedule containing summary N/A financial information extracted from the balance sheet and statement of operations which is qualified in its entirety by reference to such financial statements. 28.1 Fee Owner's Limited Partnership Agreement dated N/A November 14, 1990 (Incorporated by reference to the 1990 Annual Report). 99.1 Audited Financial Statements of Consolidated Capital Equity Partners, L.P. for the years ended December 31, 1996 and 1995. (b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1996: None. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES By: CONCAP EQUITIES, INC. Its General Partner, March 27, 1997 By: /s/ William H. Jarrard, Jr. Date William H. Jarrard, Jr. President March 27, 1997 By: /s/ Ronald Uretta Date Ronald Uretta Vice President/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 27, 1997 By: William H. Jarrard, Jr. Date William H. Jarrard President March 27, 1997 By: /s/Ronald Uretta Date Ronald Uretta Vice President/Treasurer EX-27 2
5 This schedule contains summary financial information extracted from Consoldiated Capital Institutional Properties 1996 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000352983 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 1,000 12-MOS DEC-31-1996 DEC-31-1996 12,348 7 93,370 (40,686) 0 0 28,582 (3,217) 91,657 0 4,525 0 0 0 84,588 91,657 0 9,414 0 0 8,586 0 326 0 0 0 0 0 0 828 4.12 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-99.1 3 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 and 1995 TABLE OF CONTENTS December 31, 1996 LIST OF FINANCIAL STATEMENTS Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Partners' Deficit for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Equity Partners L.P. We have audited the accompanying consolidated balance sheets of Consolidated Capital Equity Partners L.P. as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Equity Partners L.P. as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, in 1995 the Partnership changed its method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of. /s/ERNST & YOUNG LLP Greenville, South Carolina February 4, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Consolidated Capital Equity Partners, L.P.: We have audited the accompanying statements of operations, partners' deficit and cash flows of Consolidated Capital Equity Partners, L.P. (a California limited partnership) for the year ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations, changes in partners' deficit and cash flows of Consolidated Capital Equity Partners, L.P. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/Arthur Andersen, LLP Dallas, Texas March 23, 1995 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) 1996 1995 Assets Cash and cash equivalents $ 2,515 $ 2,225 Investments in limited partnerships 336 460 Other assets 3,979 5,725 Investment properties: Land 10,217 10,452 Building and related personal property 95,236 94,906 105,453 105,358 Less accumulated depreciation (70,606) (68,167) 34,847 37,191 $ 41,677 $ 45,601 Liabilities and Partners' Deficit Liabilities Accounts payable and accrued liabilities $ 1,949 $ 3,035 Mortgage notes and interest payable 23,529 25,050 Master Loan and interest payable 261,136 233,490 286,614 261,575 Partners' Deficit General Partner (2,449) (2,159) Limited Partners (242,488) (213,815) (244,937) (215,974) $ 41,677 $ 45,601 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Revenues: Rental $ 19,848 $ 24,907 $ 22,987 Other income 140 119 77 Total revenues 19,988 25,026 23,064 Costs and expenses: Interest 31,323 30,432 27,573 Operating 12,198 16,380 15,903 Depreciation and amortization 5,372 6,431 6,132 General and administrative 965 965 780 Write-down of investment properties and investment in limited partnerships -- 8,814 -- Total expenses 49,858 63,022 50,388 Gain (loss) on disposition of property 907 81 (31) Loss before extraordinary item (37,915) (27,355) Loss on early extinguishment of debt -- (19) -- Net loss $(28,963) $(37,934) $(27,355) Net loss allocated to general partner (1%) $ (290) $ (379) $ (273) Net loss allocated to limited partners (99%) (28,673) (37,555) (27,082) $(28,963) $(37,934) $(27,355) See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands) General Limited Partner Partners Total Partners' deficit at December 31, 1993 $(1,507) $(149,178) $(150,685) Net loss for the year ended December 31, 1994 (273) (27,082) (27,355) Partners' deficit at December 31, 1994 (1,780) (176,260) (178,040) Net loss for the year ended December 31, 1995 (379) (37,555) (37,934) Partners' deficit at December 31, 1995 (2,159) (213,815) (215,974) Net loss for the year ended December 31, 1996 (290) (28,673) (28,963) Partners' deficit at December 31, 1996 $(2,449) $(242,488) $(244,937) See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Cash flows from operating activities: Net loss $(28,963) $(37,934) $(27,355) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 5,450 6,440 6,132 (Gain) loss on disposition of property (907) (81) 31 Write-down of investment properties and investments in limited partnerships 8,814 -- Change in accounts: Other assets 1,676 (2,871) (170) Interest payable 57 79 24,648 Payable to affiliates -- (969) 349 Accounts payable and accrued liabilities (1,084) 1,039 141 Interest on Master Loan 29,523 27,428 -- Net cash provided by operating activities 5,752 1,945 3,776 Cash flows from investing activities: Property improvements and replacements (3,963) (5,137) (2,149) Purchase of securities available for sale -- -- (195) Proceeds from sale of securities available for sale -- 195 -- Net proceeds from the disposition of real estate 1,956 -- 130 Net cash used in investing activities (2,007) (4,942) (2,214) Cash flows from financing activities: Proceeds from long-term borrowings -- 23,635 -- Advances on Master Loan 367 4,002 40 Repayment of note payable (1,295) -- -- Loan costs paid (1) (798) -- Principal payments on Master Loan (2,243) (21,661) -- Principal payments on notes payable (283) (3,349) (638) Net cash (used in) provided by financing activities (3,455) 1,829 (598) Net increase (decrease) in cash and cash equivalents 290 (1,168) 964 Cash and cash equivalents, at beginning of year 2,225 3,393 2,429 Cash and cash equivalents, at end of year $ 2,515 $ 2,225 $ 3,393 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,664 $ 2,917 $ 2,550 See Accompanying Notes to Consolidated Financial Statements Note A - Organization and Summary of Significant Accounting Policies Organization: Consolidated Capital Equity Partners ("EP"), a California general partnership, was formed on June 24, 1981, to engage in the business of acquiring, operating and holding equity investments in income-producing real properties. The operations of EP were financed substantially through nonrecourse notes (the "Master Loan") from Consolidated Capital Institutional Properties ("CCIP"), a California limited partnership. These notes are secured by the real properties owned by EP. The General Partner of CCIP is ConCap Equities, Inc. ("CEI"), a Delaware corporation. In November 1990, EP's general partners executed a new partnership agreement (the "New Partnership Agreement") in conjunction with the bankruptcy settlement discussed below whereby EP converted from a general partnership to a California limited partnership, Consolidated Capital Equity Partners L.P. ("CCEP"). Pursuant to the New Partnership Agreement, ConCap Holding, Inc. ("CHI"), a Texas corporation, a wholly-owned subsidiary of CEI, became the general partner of CCEP, and the former general partners of EP became limited partners of CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock is owned by an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994, and October 1995. Principles of Consolidation: CCEP owns a 75% interest in a limited partnership ("Western Can, Ltd.") which owns 444 De Haro, an office building in San Francisco, California. CCEP's investment in Western Can, Ltd. is consolidated in CCEP's financial statements. No minority interest liability has been reflected for the 25% minority interest because Western Can Ltd. has a net capital deficit and no minority liability exists with respect to CCEP. The operations from September 30, 1993, through November 30, 1995, of The Sterling are consolidated in CCEP's financial statements pursuant to accounting guidelines regarding notes receivable in-substance foreclosed. The Sterling was transferred to CCIP in a series of transactions on November 30, 1995. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: Unrestricted - Unrestricted cash includes cash on hand and in banks and in money market funds. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted cash - tenant security deposits - CCEP requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Restricted Escrows: Replacement Reserve Account: At the time of the December 15, 1995, refinancing approximately $375,000 of the proceeds were designated for a "replacement reserve fund" for certain capital replacements (as defined in the Replacement Reserve Agreement) at Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek Village and Tates Creek Village. At December 31, 1996, the "replacement reserve fund" was approximately $693,000 and is included in other assets. Repair Escrow Account: In addition to the Replacement Reserve Account, approximately $2,456,000 of the refinancing proceeds were designated for a "repair escrow" to cover necessary repairs and replacements to be completed at Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek Village and Tates Creek Village within one year of closing. At December 31, 1996, the balance was approximately $727,000 and is included in other assets. All excess funds will be transferred into the Replacement Reserve Account once the necessary repairs have been completed. Escrows for Taxes: These funds, held by the Partnership and the mortgage holder, are designated for the payment of real estate taxes and are included in other assets. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used (1) for real property over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984, and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 to 15 years. Loan Costs: Loan costs of approximately $780,000, less accumulated amortization of $81,000, are included in other assets and are being amortized on a straight- line basis over the life of the loans. Note Receivable In-Substance Foreclosed: The Sterling Apartment Homes and Commerce Center ("The Sterling") was deemed in-substance foreclosed as of September 30, 1993. The Sterling note receivable is deemed in-substance foreclosed because control of the property effectively rests with an affiliate of CCEP and the debtor is unable to pay debt service according to the note terms. The note receivable in-substance foreclosed is recorded at the estimated fair value of the collateral property. See "Note B." Investments in Limited Partnerships: The investments in limited partnerships represent certain interest in three affiliated limited partnerships that were contributed by EP's general partners to CCEP. These investments are stated at the lower of estimated fair value of the interests at the time of contribution to CCEP or the current estimated fair value of the interests. CCEP wrote this investment down $1 million to its estimated fair value during the third quarter of 1995. Also, in the fourth quarter of 1995, CCEP received distributions from two of the affiliated partnerships of approximately $1,048,000. During 1996, CCEP received distributions from three of the affiliated partnerships of approximately $124,000. This amount was subsequently paid to CCIP as a principal payment on the Master Loan per the loan agreement. Advertising: CCEP expenses the costs of advertising as incurred. Investment Properties: During 1995, CCEP adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. During 1995, 444 De Haro experienced a decline in its estimated net realizable value. Accordingly, CCEP recorded approximately $2.814 million in expense for the write-down on the real estate in the year ended December 31, 1995. CCEP did not record any expense for the write down on real estate during the year ended December 31, 1996. Leases: CCEP leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with "FASB Statement No. 13 Accounting for Leases.". Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. For all other leases, minimum rents are recognized over the terms of the leases. CCEP generally leases apartment units for twelve-month terms or less. CCEP recognizes income as earned on these leases. In addition, management finds it necessary to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to expenses as incurred. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1996 and 1995, lease commissions totaled approximately $741,000 and approximately $625,000, respectively, with accumulated amortization of approximately $297,000 and approximately $201,000, respectively. Lease commissions are included in other assets. Allocation of Net Income: Pursuant to the Partnership Agreement, net income and net losses for both financial and tax reporting purposes are allocated 99% to the Limited Partners and 1% to CHI. Due to Affiliates: Due to affiliates primarily represents cash flow payments owed by CCEP to CCIP in accordance with the terms of the Master Loan. Income Taxes: No provision has been made in the financial statements for Federal income taxes because, under current law, no Federal income taxes are paid directly by CCEP. The Partners are responsible for their respective shares of CCEP's net income or loss. CCEP reports certain transactions differently for tax than for financial statement purposes. The tax basis of CCEP's assets and liabilities is approximately $156.5 million greater than the assets and liabilities as reported in the financial statements at December 31, 1996. Fair Value: In 1995, CCEP implemented "FASB Statement No. 107, Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of CCEP's cash and cash equivalents approximates fair value due to short-term maturities. CCEP estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 information to conform to the 1996 presentation. Note B - Note Receivable Deemed in-Substance Foreclosed CCEP held a note receivable (the "Sterling Note" formerly the "Carlton House Note") secured by a deed of trust on The Sterling with a scheduled maturity in 1995. According to the note terms, interest accrues at 10% and compounds monthly on principal plus accrued but unpaid interest. The note receivable has been in default since 1991. As described more fully below the required debt service payments were reduced to only the amount of net cash flow from The Sterling. CCEP recognized no interest income in 1994 and 1995, as no cash related to the note receivable was received by CCEP. The Sterling was originally owned by CCEP. In 1984, CCEP sold The Sterling and received back a $28 million purchase money note secured by a first lien on the property. CCEP assigned this purchase money note to CCIP as additional collateral for the Master Loan. In 1986, the buyer defaulted on this purchase money note and filed for bankruptcy when CCEP attempted to foreclose on The Sterling. Pursuant to a reorganization plan, a successor (New Carlton House Partners, Ltd., "NCHP") to the buyer executed a new promissory note in the amount of $31.5 million (the Sterling Note). In early 1991, NCHP defaulted on The Sterling Note. Since the default, CCEP and NCHP have negotiated a restructuring of The Sterling Note. During the negotiating process, the owner made interim payments of $150,000 per month. In 1992, CCEP and NCHP entered into a Restructure Agreement. Pursuant to the Restructure Agreement, 1801 Tower, Inc., an affiliate of CCEP and CCIP was substituted as the new general partner of NCHP in February 1993. In September 1993, a wholly-owned subsidiary of CCIP purchased the $20.4 million second lien mortgage note secured by The Sterling from an unaffiliated third party. This mortgage note, which is subordinate to CCEP's Master Loan debt secured by The Sterling, remains the obligation of NCHP. As a result of the facts that (1) NCHP has no equity in The Sterling, considering the current fair value of The Sterling; (2) proceeds for repayment of The Sterling Note can be expected to come only from the operations or sale of The Sterling; and (3) NCHP effectively abandoned control of The Sterling to CCEP when 1801 Tower, Inc. gained the general partner interest in NCHP in 1993, CCEP deemed The Sterling in-substance foreclosed as of December 31, 1993. On November 30, 1995, NCHP, owner of a multi-use apartment/commercial building known as The Sterling, CCEP, Philly Associates Inc., a Texas Corporation ("Philly"), and Kennedy Boulevard Associates, L.P., a Pennsylvania limited partnership ("KBA-I, L.P.") (an affiliate of CCIP) entered into a consensual Transfer Agreement whereby certain mortgage notes held by CCEP and Philly that are secured by The Sterling were assigned to KBA-I, L.P. As NCHP is unable to repay the debt, the parties agreed that in order to avoid the additional costs and expenses of litigation or a judicial foreclosure, that NCHP transfer The Sterling to KBA-I, L.P. by a deed-in-lieu of foreclosure in full satisfaction of its obligations on the mortgages assigned to KBA-I, L.P. As an additional matter, the transfer of The Sterling to KBA-I, L.P. shall be in satisfaction of a portion of the amounts owed by CCEP to CCIP under the Master Loan Agreement. NCHP transferred The Sterling to KBA-I, L.P. and CCIP recorded the transfer on November 30, 1995. Summarized below are the results of operations of The Sterling that are included in CCEP's financial statements for the years ended December 31, 1995 and 1994, prepared on the same basis as CCEP's financial statements. Any intercompany balances between CCEP and The Sterling have been eliminated in CCEP's consolidated financial statements and the summarized financial statements set forth below: For the Eleven For the Year Months Ended Ended November 30, December 31, 1995 1994 Rental revenue $ 5,705 $ 4,831 Investment income 26 27 Total revenues 5,731 4,858 Costs and expenses: Property operations 3,747 4,108 Depreciation 953 920 Administrative 103 78 Interest 1,342 3 Write-down of investment property 5,000 -- Total costs and expenses 11,145 5,109 Net loss $(5,414) $ (251) Note C - Disposition of Real Estate On September 13, 1996, CCEP sold Lakeview office Tower to an unrelated third party for a contract price of $2,060,000. The Partnership received net proceeds of approximately $1,956,000 after payment of closing costs. A portion of the net proceeds were used to retire a mortgage note payable on the property in the amount of approximately $1,295,000. The remaining proceeds of approximately $587,000 were remitted to CCIP to pay down the Master Loan. During 1995, CCEP recognized a gain of approximately $134,000 related to a clubhouse fire at Tates Creek Village and a roof replacement at The Knolls. Offsetting these gains were losses of approximately $53,000 relating to roof replacements at Granada, Society Park East, Palm Lake, Indian Creek Village and Shirewood Townhomes. During 1994, CCEP sold a building and the related parcel of land which was adjacent to the Plantation Gardens Apartments. CCEP recognized a $31,000 loss on the sale. Note D - Master Loan and Accrued Interest Payable The Master Loan principal and accrued interest payable balances at December 31, 1996, and December 31, 1995, are $261.1 million and $233.5 million, respectively. Terms of the New Master Loan Agreement Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. The interest rates for each of the years ended December 31, 1996, 1995 and 1994 was 12.5%. Interest payments are currently payable quarterly in an amount equal to "Excess Cash Flow." If such Excess Cash Flow payments are less than the current accrued interest during the quarterly period, the unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. If such Excess Cash Flow payments are greater than the currently payable interest, the excess amount is applied to the principal balance of the loan. Any net proceeds from sale or refinancing of any of CCEP's properties are paid to CCIP under the terms of the Master Loan Agreement. The Master Loan Agreement matures in November 2000. The General Partner has determined that the Master Loan and related interest payable has no determinable fair value since payments are limited to net cash flow, as defined, however the fair value is not believed to be in excess of the fair value of the underlying collateral. Effective January 1, 1993, CCEP and CCIP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from CCIP to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP by the amount of CCEP's capital expenditures, since such amounts were previously excluded from Excess Cash Flow. The amendment will have no effect on the computation of interest expense on the Master Loan for CCEP. CCIP advanced approximately $367,000 and $4 million to CCEP as an advance on the Master Loan during 1996 and 1995, respectively, to pay for deferred maintenance and capital improvements and to pay off certain third party mortgages. In February 1994, CCIP advanced approximately $589,000 to New Carlton House Partners ("NCHP"), as an advance on the note receivable ("The Sterling Note") secured by a deed of trust on The Sterling Apartment Homes and Commerce Center ("The Sterling"), to pay The Sterling's 1994 property taxes. In February 1994, CCIP advanced $40,000 to CCEP as an advance on the Master Loan. CCEP then advanced $40,000 to NCHP as an advance on The Sterling Note to pay the remaining balance of 1993 property taxes. The Sterling note was forgiven in the November 30, 1995, deed-in-lieu of foreclosure transaction. The Sterling note had been previously written-off in the 1993 in-substance foreclosure transaction. In connection with the transfer of The Sterling to KBA-I, the General Partner of CCIP had a valuation performed on the property to determine its estimated fair value. The asset had previously been recorded on the books on the Partnership and for valuation for the Master Loan based upon appraisals performed by a third party. The last appraisal valued the property as of May 12, 1995. The General Partner believed that the information needed to evaluate the property had changed since this appraisal and that the use of updated information would ensure a more accurate recording of the transfer of this asset. Based on its ongoing evaluation of the condition of the property, the General Partner concluded that additional information received during the fourth quarter of 1995 regarding the extent of deferred maintenance and improvements needed to the property indicated that a $5,000,000 write-down was needed to reduce the property to its estimated net realizable value. The Partnership recorded this write-down during the fourth quarter of 1995 before the property was transferred to KBA-I. Note E - Notes and Interest Payable The principal terms of mortgage notes payable are as follows (in thousands): Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1996 Interest Rate Date Maturity Indian Creek Village 1st Mortgage $ 4,652 $ 31 6.95% 12/01/05 $ 4,036 The Knolls 1st Mortgage 5,370 36 6.95% 12/01/05 4,659 Palm Lake 1st Mortgage 1,732 12 6.95% 12/01/05 1,503 Plantation Gardens 1st Mortgage 7,027 47 6.95% 12/01/05 6,097 Society Park East 1st Mortgage 2,039 14 6.95% 12/01/05 1,769 Tates Creek Village 1st Mortgage 2,573 17 6.95% 12/01/05 2,233 Totals $23,393 At December 31, 1996, the notes payable are all nonrecourse, collateralized by deeds of trust on the real property. The estimated fair value of CCEP's aggregate debt, excluding the Master Loan, approximates its carrying value. This estimate is not necessarily indicative of the amount the Partnership may pay in actual market transactions. On December 15, 1995, CCEP successfully financed new mortgage notes on Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and Indian Creek Village. Of the $23,635,000 gross proceeds received in the refinancing, approximately $546,000 was used to pay off the old mortgage debt on Tates Creek Village. Additionally, $19,857,000 of the net proceeds was used to pay down the Master Loan to CCIP. This new debt is superior to the Master Loan. Summary of Maturities Principal payments on notes payable are due as follows (in thousands): Years Ending December 31, Notes Payable 1997 $ 260 1998 279 1999 298 2000 320 2001 343 Thereafter 21,893 Total $ 23,393 Note F - Related Party Transactions CCEP has no employees and is dependent on the General Partner and its affiliates for management and administration of all partnership activities. CCEP paid property management fees based upon collected gross rental revenues for property management services in each of the years ended December 31, 1996, 1995 and 1994. For the year ended December 31, 1994, a portion of such property management fees were paid to the unaffiliated property management companies performing day-to- day property management services and a portion was paid to Partnership Services, Inc. ("PSI") for advisory services related to day-to-day property operations. In July 1993, Coventry Properties, Inc. ("Coventry"), an affiliate of the General Partner, assumed day-to-day property management responsibility for two of CCEP's properties under the same fee arrangement as the unaffiliated management companies. Additionally, from February 1993 until December 1994, Coventry managed The Sterling for CCEP. In late December 1994, an affiliate of Insignia Financial Group, Inc. ("Insignia"), an affiliate of the General Partner, assumed day-to-day property management responsibilities for all of CCEP's properties. Fees paid to affiliates of Insignia during the years ended December 31, 1996 and 1995, and fees paid to Coventry and PSI for the year ended December 31, 1994, are reflected in the following table. Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an affiliate of ConCap Holdings, Inc. ("CHI"). This agreement provides for an annual fee, payable in monthly installments, to an affiliate of CHI for advising and consulting services for CCEP's properties. Advisory fees paid pursuant to this agreement are reflected in the following table. The Partnership Agreement ("Agreement") also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of CCEP activities. The General Partner and its current and former affiliates, which includes Coventry, received reimbursements for the year ended December 31, 1996, 1995 and 1994, as reflected in the following table: For the Years Ended December 31, 1996 1995 1994 (in thousands) Property management fees $1,000 $1,253 $740 Investment advisory fees 182 233 257 Lease commissions 69 221 110 Reimbursement for services of affiliates (1) 537 428 319 (1) Included in "reimbursements for services of affiliates" for 1996 is approximately $150,000 in reimbursements for construction oversight costs. In addition to the compensation and reimbursements described above, interest payments are made to and loan advances are received from Consolidated Capital Institutional Properties ("CCIP") pursuant to the Master Loan Agreement. Such interest and principal payments totaled approximately $2.5 million and $1.5 million for the years ended December 31, 1995 and 1994, respectively. There were no interest payments during 1996. The Partnership received advances under the Master Loan Agreement totaling $40,000 in February 1994. Advances of approximately $4 million were made under the Master Loan Agreement during the year ended December 31, 1995. The Sterling was transferred to CCIP on November 30, 1995, in partial settlement of the Master Loan. As a result of this transaction, CCIP relieved the Master Loan obligation by approximately $15,537,000. Additionally, the net proceeds from the financing of Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and Indian Creek Village of $19,857,000 were paid to CCIP to pay down the Master Loan. Also, approximately $1,048,000 of distributions received from two affiliated partnerships were paid to CCIP to pay down the Master Loan. During 1996, advances of approximately $367,000 were made under the Master Loan Agreement. During the year ended December 31, 1996, CCEP paid approximately $2,243,000 to CCIP as principal payments on the Master Loan. Approximately $101,000 was due to the return of a real estate tax escrow set up at the time of the December 1995, financing of a certain CCEP investment property. This escrow was held until CCEP was able to provide proof of payment to the mortgage holder. In September 1996, Lakeview Office Towers was sold and approximately $587,000 was paid to CCIP to pay down the Master Loan. Also, approximately $123,000 of distributions received from three affiliated partnerships and approximately $1,432,000 of excess cash flow was paid to CCIP to reduce the Master Loan obligation. On July 1, 1995, CCEP began insuring its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of CCEP's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. Note G - Revenues Rental income on the commercial property leases is recognized on a straight-line basis over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): YEAR ENDING DECEMBER 31, 1997 $2,159 1998 1,870 1999 1,618 2000 1,177 2001 791 Thereafter 1,033 $8,648 There is no assurance that this rental income will continue at the same level when the current leases expire. Note H - Real Estate and Accumulated Depreciation The investment properties owned by the Partnership consist of the following: (dollar amounts in thousands) Building & Related Personal Accumulated Depreciable Description Land Interest Total Depreciation Life-Years 444 De Haro $ 947 $12,231 $ 13,178 $ 9,296 3-18 Granada 171 2,849 3,020 2,082 5-18 Indian Creek Village 1,041 8,242 9,283 5,941 5-18 The Knolls 647 6,797 7,444 4,876 5-18 Northlake Quadrangle 980 4,157 5,137 3,343 5-18 Palm Lake 272 4,300 4,572 3,238 5-18 Plantation Gardens 1,958 12,919 14,877 9,675 5-18 Regency 350 7,174 7,524 5,357 5-18 Magnolia Trace 892 5,599 6,491 4,228 5-18 Shirewood Townhomes 494 5,968 6,462 4,413 5-18 Silverado 628 4,591 5,219 3,625 5-18 Society Park 966 8,264 9,230 6,275 5-18 Society Park East 489 5,163 5,652 3,353 5-18 Tates Creek Village 382 6,982 7,364 4,904 5-18 Total $10,217 $95,236 $105,453 $70,606 -----END PRIVACY-ENHANCED MESSAGE-----