-----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, GdSZJ0ef2Mm/0HJmMnC+PkMeIzkWcXDoqM32p2O1d3vATazX0pUdoJZdlMcOjgOw OabtCjiv8MFeEolcX68FOQ== 0000355804-98-000002.txt : 19980324 0000355804-98-000002.hdr.sgml : 19980324 ACCESSION NUMBER: 0000355804-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL PROPERTIES IV CENTRAL INDEX KEY: 0000355804 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942768742 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11002 FILM NUMBER: 98571349 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCLE PLZ STREET 2: P O BOX 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 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, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from.........to......... Commission file number 0-11002 CONSOLIDATED CAPITAL PROPERTIES IV (Exact name of registrant as specified in its charter) California 94-2768742 (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) Registrant's telephone number (864) 239-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: 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 (Sec. 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. (Amended by Exch Act Rel No. 28869, eff. 5/1/91.) State the aggregate market value of the voting partnership interests held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of a specified date within 60 days prior to the date of filing: Market value information for the Registrant's partnership interests is not available. PART I ITEM 1. DESCRIPTION OF BUSINESS Consolidated Capital Properties IV (the "Partnership" or "Registrant") was organized on September 22, 1981, as a limited partnership under the California Uniform Limited Partnership Act. On December 18, 1981, the Partnership registered with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933 (File No. 2-74353) and commenced a public offering for sale of $100,000,000 of Units with the general partner's right to increase the offering to $200,000,000. The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered under the Securities Exchange Act of 1934 (File No. 0-11002) on March 28, 1983. The sale of Units closed on December 14, 1983, with 343,106 Units sold at $500 each, or gross proceeds of $171,553,000 to the Partnership. At the request of certain Limited Partners and in accordance with its Partnership Agreement, the Partnership has retired a total of 333 Units as of December 31, 1997. The Partnership gave no consideration for these Units. By the end of fiscal year 1985, approximately 73% of the proceeds raised had been invested in 48 properties. Of the remaining 27%, 11% was required for organizational and offering expenses, sales commissions and acquisition fees, and 16% was retained in Partnership reserves for project improvements and working capital as required by the Partnership Agreement. The general partner of the Partnership is ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI"). The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was formed to acquire, own, operate and ultimately dispose of income-producing real properties for the benefit of its Limited Partners (herein so called; and together with the General Partner shall be called the "Partners"). As of the close of fiscal year 1985, the Partnership had completed its property acquisition stage and had acquired 48 properties. At December 31, 1997, the Partnership owned 17 income-producing properties (or interests therein) and held one note receivable with respect to a sold property. Prior to 1996, the Partnership had disposed of 30 properties originally owned by the Partnership. In February of 1996, the Partnership lost an additional property through foreclosure, as discussed below. The real estate business is highly competitive. The Registrant's real property investments are subject to competition from similar types of properties in the localities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in businesses which may be competitive with the Registrant. The Registrant has no employees. Partnership management and administrative services, as well as property management services, are performed by affiliates of Insignia Financial Group, Inc. ("Insignia"), an affiliate of the General Partner. The property manager is responsible for the day-to-day operations of each property. The General Partner has also selected an affiliate of Insignia to provide real estate advisory and asset management services to the Partnership. As advisor, such affiliate provides all partnership accounting and administrative services, investment management, and supervisory services over property management and leasing. For a further discussion of property and partnership management, see "Item 13", which descriptions are herein incorporated by reference. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies. On September 25, 1995, the partners were proxied and approved a reduction of the capital reserve requirements to $500 per apartment unit and $1.00 per square foot of gross leasable commercial space owned by the Partnership, or approximately $2,200,000. During 1996, the Metro Centre Office Building was foreclosed on by the lender. Accordingly, the replacement reserve requirement at the remaining residential properties was reduced to approximately $2,100,000. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including unrestricted cash and cash equivalents, and investments, totaling approximately $12,100,000 at December 31, 1997, exceeded the Partnership's reserve requirements of approximately $2,100,000. The Partnership currently owns and operates 17 apartment complexes, which range in age from 21 to 27 years old, principally located in the midwest, southeastern and southwestern United States. The Partnership also holds one note receivable on a sold property which is performing according to the note terms as of December 31, 1997. The Partnership has made significant capital investments in its real estate portfolio during the previous three years. These investments consisted of selected property improvement and rehabilitation programs and expenditures to cure deferred maintenance which existed at certain of the properties. Capital expenditures of approximately $2,950,000 are budgeted for the Partnership's properties in 1998. Approximately $2,500,000 of non-recourse mortgage debt secured by the Metro Centre Office Building, located in Southern California, matured July 1, 1995. The property historically had difficulty making its scheduled debt service payments and, since 1985, the property made quarterly cash flow payments pursuant to a modified and restructured loan agreement, however, no payments were made in 1995. Given existing economic conditions in Southern California, property operations were not expected to improve sufficiently to enable the Partnership to refinance the existing indebtedness under prevailing market conditions. In September 1995, a Notice of Default and Election to Sell Under Deed of Trust was filed by the lender. The Partnership did not contest this foreclosure action and the property was foreclosed upon on February 7, 1996. Prior to March 1995, the Nob Hill Villa Apartments ("Nob Hill") secured two non- recourse mortgage notes totaling approximately $5,800,000. One of the notes, a $3,800,000 first-lien mortgage, was scheduled to mature in November 1995. In March 1995, the General Partner refinanced these mortgage notes by obtaining a new mortgage note of approximately $7,500,000 million secured by Nob Hill. Under the terms of the refinancing agreement, the new mortgage note bears interest at 9.2% and matures in April 2005. Approximately $14,300,000 of non-recourse mortgage debt secured by the Foothill Place Apartments and the Chimney Hill Apartments originally matured in 1994. The Partnership exercised its option to extend the maturities until September 1995, by paying a 1%, or $143,000, loan extension fee to the current lender, as provided for in the loan agreement. In December 1995, these properties, along with five of the Partnership's other properties, were refinanced under terms requiring monthly payments of interest only at a rate of 6.95% and a maturity date of December 2005. (See "Note C" in the Notes to Consolidated Financial Statements in "Item 8"). Prior to November 1996, Lake Forest Apartments ("Lake Forest") secured a mortgage note guaranteed by the U.S. Department of Housing and Urban Development ("HUD") totaling approximately $4,100,000. In November 1996, the Partnership refinanced this mortgage note by obtaining a new mortgage note of approximately $4,700,000 secured by Lake Forest. Under the terms of the refinancing agreement, the new mortgage note bears interest at 7.33%, requires monthly payments of interest only and matures in November 2003. The Post Ridge Apartments ("Post Ridge") formerly secured a mortgage note totaling approximately $4,200,000, which was guaranteed by HUD. Operating cash flow from Post Ridge did not support its scheduled debt service payments. As a result, in January 1991, the Partnership suspended scheduled debt service for Post Ridge. From 1991 through March of 1995, the Partnership remitted excess cash flow from the property's operations as debt service. On March 28, 1995, this debt was sold to an unaffiliated third party. Accordingly, since the closing of the sale on May 8, 1995, this debt is no longer regulated by HUD. In September of 1996, the Partnership entered into an interim financing arrangement and refinanced the non-recourse mortgage note of approximately $4,200,000 secured by Post Ridge. Under the terms of the interim financing arrangement, the new $4,100,000 mortgage note bore interest at 8% through October 31, 1996, and from November 1, 1996, through the maturity date of November 15, 1996, the note bore interest at a rate equal to 2.5% plus the average one month LIBOR (totaling 7.875%). As a result of this refinancing, the Partnership realized a $16,000 gain on the forgiveness of accrued interest, a $61,000 gain on the forgiveness of advances from prior years, and a $158,000 loss on the write-off of loan costs which resulted in a net extraordinary loss on refinancing of $81,000. In November 1996, the General Partner obtained permanent financing by securing a new mortgage note of approximately $4,100,000 collateralized by Post Ridge. Under the terms of the refinancing agreement, this mortgage note bears interest at 7.33%, requires monthly payments of interest only and matures in November 2003. To facilitate the refinancing of the mortgage note secured by Post Ridge, effective August 7, 1996, the Post Ridge Associates, Ltd. Limited Partnership Agreement was amended to convert the general partnership interest held by the Registrant to a limited partnership interest, such that the Registrant shall be the sole Limited Partner owning a 99.0% limited partnership interest in Post Ridge Associates, Ltd. Concap Equities, Inc. was admitted as the new General Partner owning a 1.0% general partner interest and PRA, Inc. withdrew as the Limited Partner of Post Ridge Associates, Ltd. On November 18, 1997, the Partnership refinanced the mortgage encumbering the South Port Apartments. The refinancing replaced indebtedness of $3,432,000, including accrued interest of approximately $18,000, with a new mortgage in the amount of $4,500,000. The mortgage was refinanced at a rate of 7.19%, compared to the prior rate of 10.85%, and matures on December 1, 2004. Total capitalized loan costs were $120,000. The Partnership paid approximately $34,000 in prepayment penalties and wrote off $13,000 in unamortized loan costs, resulting in an extraordinary loss on extinguishment of debt in the amount of approximately $47,000. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC"), a Colorado corporation, was the corporate general partner and Consolidated Capital Management Company ("CCMC"), a California general partnership, was the non-corporate general partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired a controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of its reorganization plan, CEI acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the Limited Partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership, and the conversion of CCMC from a general partner to a Special Limited Partner, thereby leaving CEI as the sole general partner of the Partnership. On November 14, 1990, CCMC was dissolved and its Special Limited Partnership interest was divided among its former partners. All of CEI's outstanding stock is owned by Insignia Properties Trust, an affiliate of Insignia. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which an affiliate of Insignia acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, the Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity, and a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. At December 31, 1997, Insignia Properties, L.P., an affiliate of Insignia, owned 95,817 units of the Partnership. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender offers for limited partnership interests in six real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 85,000 of the outstanding units of limited partnership interest in the Partnership, at $140.00 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on August 28, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. On October 6, 1997, the Insignia affiliate closed the tender offer and acquired 29,618 Units of Limited Partnership Interest (8.64% of total Units). In addition, because of these conflicts of interest, including as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interest in the Partnership may not always be consistent with the best interests of the other limited partners. On January 20, 1995, an affiliate of the General Partner, Insignia CCP IV Acquisition, L.L.C., closed an offer to purchase Units (the "Tender Offer") for a cash price of $60 per Unit for Limited Partners of record as of December 15, 1994. Approximately 3,370 Limited Partners holding 64,175 Units (18.72% of total Units) accepted the Tender Offer and sold their Units to Insignia CCP IV Acquisition, L.L.C. effective January 20, 1995, for an aggregate sales price of approximately $3,900,000. ITEM 2. DESCRIPTION OF PROPERTY The Partnership originally acquired 48 properties of which eleven (11) were sold, ten (10) were conveyed to lenders in lieu of foreclosure, and nine (9) were foreclosed upon by the lenders in fiscal years prior to 1996. As of December 31, 1997, the Partnership owned seventeen (17) apartment complexes and held one (1) note receivable on a sold property as noted below. Additional information about the properties is found in "Item 8 - Financial Statements and Supplementary Data."
Date of Property Purchase Type of Ownership Use The Apartments Apartments 04/84 Fee ownership subject Residential Apartments Omaha, Nebraska to first mortgage 204 units Arbours of Hermitage Apartments 09/83 Fee ownership subject Residential Apartments (formerly Arbour East Apartments to first mortgage 350 units Nashville, Tennessee Briar Bay Racquet Club Apartments 09/82 Fee ownership subject Residential Apartments Miami, Florida to first mortgage 194 units Chimney Hill Apartments 08/82 Fee ownership subject Residential Apartments Marietta, Georgia to first mortgage 326 units Citadel Apartments 05/83 Fee ownership subject Residential Apartments El Paso, Texas to first mortgage 261 units Citadel Village Apartments 12/82 Fee ownership subject Residential Apartments Colorado Springs, Colorado to first mortgage 122 units Foothill Place Apartments 08/85 Fee ownership subject Residential Apartments Salt Lake City, Utah to first mortgage 450 units Knollwood Apartments 07/82 Fee ownership subject Residential Apartments Nashville, Tennessee to first mortgage 326 units Lake Forest Apartments 04/84 Fee ownership subject Residential Apartments Omaha, Nebraska to first mortgage 312 units Nob Hill Villa Apartments 04/83 Fee ownership subject Residential Apartments Nashville, Tennessee to first mortgage 472 units Overlook Apartments 11/85 Fee ownership subject Residential Apartments Memphis, Tennessee to first mortgage 252 units Point West Apartments 11/85 Fee ownership Residential Apartments Charleston, South Carolina 120 units Post Ridge Apartments 07/82 Fee ownership subject Residential Apartments Nashville, Tennessee to first mortgage 150 units Rivers Edge Apartments 04/83 Fee ownership subject Residential Apartments Auburn, Washington to first mortgage 120 units South Port Apartments 11/83 Fee ownership subject Residential Apartments Tulsa, Oklahoma to first mortgage 240 units Stratford Place Apartments 08/85 Fee ownership subject Residential Apartments Austin, Texas to first mortgage 223 units Village East Apartments 12/82 Fee ownership subject Residential Apartments Cimarron Hills, Colorado to first mortgage 137 units
SCHEDULE OF PROPERTIES: (dollar amounts in thousands)
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis The Apartments Apartments $ 8,508 $5,876 5-18 yr S/L $ 2,586 Arbours of Hermitage Apartments 12,153 9,919 5-18 yr S/L 2,604 Briar Bay Racquet Club Apartments 7,684 6,237 5-18 yr S/L 2,001 Chimney Hill Apartments 10,605 9,285 5-18 yr S/L 2,297 Citadel Apartments 7,494 6,237 5-18 yr S/L 1,176 Citadel Village Apartments 3,858 3,306 5-18 yr S/L 1,090 Foothill Place Apartments 15,001 8,263 5-18 yr S/L 8,160 Knollwood Apartments 10,439 9,011 5-18 yr S/L 1,855 Lake Forest Apartments 8,947 5,629 5-18 yr S/L 2,698 Nob Hill Villa Apartments 12,332 10,578 5-18 yr S/L 1,888 Overlook Apartments 4,428 3,181 5-15 yr S/L 1,751 Point West Apartments 2,976 2,108 5-40 yr S/L 1,439 Post Ridge Apartments 4,366 3,621 5-18 yr S/L 876 Rivers Edge Apartments 3,240 2,501 5-18 yr S/L 905 South Port Apartments 7,860 5,919 5-18 yr S/L 2,006 Stratford Place Apartments 7,400 3,895 5-20 yr S/L 2,789 Village East Apartments 3,362 2,924 5-18 yr S/L 577 Totals $130,653 $98,490 $36,698 See "Note A" in the Notes to Consolidated Financial Statements in "Item 8" for a description of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 1997 Rate Amortized Date Maturity (dollar amounts in thousands) The Apartments Apartments $ 3,429 8.34% 25 years 9/00 $ 3,244 Arbours of Hermitage Apartments 5,650 6.95% (1) 12/05 5,650 Briar Bay Racquet Club Apartments 3,500 6.95% (1) 12/05 3,500 Chimney Hill Apartments 5,400 6.95% (1) 12/05 5,400 Citadel Apartments 4,749 8.38% 25 years 10/00 4,488 Citadel Village Apartments 2,450 6.95% (1) 12/05 2,450 Foothill Place Apartments 10,100 6.95% (1) 12/05 10,100 Knollwood Apartments 6,780 6.95% (1) 12/05 6,780 Lake Forest Apartments 4,700 7.33% (1) 11/03 4,700 Nob Hill Villa Apartments 7,267 9.20% 25 years 4/05 6,250 Overlook Apartments 1,850 10.50% 25 years 12/98 1,817 Post Ridge Apartments 4,050 7.33% (1) 11/03 4,050 Rivers Edge Apartments 2,002 8.40% 25 years 9/00 1,895 South Port Apartments 4,500 7.19% 30 years 12/04 4,119 Stratford Place Apartments 2,614 8.65% 25 years 9/00 2,478 Village East Apartments 2,150 6.95% (1) 12/05 2,150 $71,191 $69,071 (1) Monthly payments of interest only at the stated rate until maturity.
The notes payable represent borrowings on the properties purchased by the Partnership. The notes are non-recourse, and are collateralized by deeds of trust on the investment properties. The notes mature between 1998 and 2005, with balloon payments due at maturity, and bear interest at rates ranging from 6.95% to 10.50%. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations" for information relating to the refinancing of the mortgage encumbering South Port Apartments in the fourth quarter of 1997. Note Receivable on Sold Property: As of December 31, 1997 Underlying Note Mortgage Collateral Property Receivable Debt (in thousands) Denbigh Village Apartment complex - - 138 units Newport News, Virginia $ 1,073 $ 1,248 When Denbigh Village Apartments was sold in August 1994, the Partnership accepted a 9% interest bearing promissory note which matured in March 1996. In March 1996, an extension, under the existing terms, was negotiated to extend the note until April 1997. The note matured and the principal outstanding was not repaid. The Partnership has now negotiated with the borrower to extend the terms of the note until April 1, 1998. All other terms of the note remained unchanged. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8 - Financial Statements and Supplementary Data," for further discussion of the Denbigh Village Apartments sale and the note receivable by the Partnership. Denbigh Village Apartments secures two underlying mortgage notes. The balance of the first mortgage is approximately $534,000 at December 31, 1997, has a stated interest rate of 9.5% and matures in December 2002. The balance of the second mortgage is approximately $714,000, has a stated interest rate of 9.5% and matures December 31, 1998. SCHEDULE OF RENTAL RATES AND OCCUPANCY: Average Annual Average Annual Rental Rates Occupancy Per Unit 1997 1996 1997 1996 The Apartments Apartments $ 6,338 $ 5,821 96% 92% Arbours of Hermitage Apartments 7,052 6,784 95% 95% Briar Bay Racquet Club Apartments 8,372 8,207 94% 97% Chimney Hill Apartments 7,886 7,540 88% 92% Citadel Apartments 6,753 6,753 93% 91% Citadel Village Apartments 8,189 7,672 96% 97% Foothill Place Apartments 7,696 7,300 95% 97% Knollwood Apartments 7,582 7,194 96% 97% Lake Forest Apartments 6,605 6,073 95% 94% Nob Hill Villa Apartments 5,883 5,612 94% 97% Overlook Apartments 3,990 3,945 90% 83% Point West Apartments 5,238 5,121 97% 90% Post Ridge Apartments 8,965 8,689 96% 96% Rivers Edge Apartments 6,638 6,342 97% 97% South Port Apartments 5,551 5,333 94% 96% Stratford Place Apartments 6,900 6,494 91% 92% Village East Apartments 6,678 6,142 98% 99% The decrease in occupancy at Briar Bay Racquet Club Apartments is due in part to an overall decrease in occupancy in the local market. In addition, the exterior appearance of the property has impacted marketing. Exterior repairs and painting were completed in 1997 in an attempt to improve the curb appeal of this property. The decrease in occupancy at Chimney Hill Apartments is attributable to a significant decline in the job market after the completion of the 1996 Olympic summer games and the construction of new multi-family units, which increased competition in the Atlanta market. The exterior of the property was also in need of repairs and current renovations include replacing patios, balconies, and stairwells with wrought iron. The increase in occupancy at Overlook Apartments is due to increased marketing, combined with the availability of attractive, well maintained units. However, occupancy remains low at this investment property due to it being located in a low income neighborhood that is high in crime and heavily populated with similar complexes. The increased occupancy at Point West Apartments is due to interior and exterior building improvements that increased unit appeal and overall improvement in the strength of the local market. The increase in occupancy at The Apartments Apartments is due to a strengthening Omaha market as well as the impact of significant capital expenditures in late 1996 and during 1997. On average the Partnership's properties taken as a whole showed a moderate increase in average rental rates and a consistent overall occupancy level. 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 office buildings in the areas in which they operate. The General Partner believes that all of the properties are adequately insured. SCHEDULE OF REAL ESTATE TAXES AND RATES: Real estate taxes (dollar amounts in thousands) and rates in 1997 for each property were: 1997 1997 Billing Rate The Apartments Apartments *$131 2.6% Arbours of Hermitage Apartments 153 1.3% Briar Bay Racquet Club Apartments 149 2.3% Chimney Hill Apartments 127 3.2% Citadel Apartments 141 2.8% Citadel Village Apartments * 16 0.7% Foothill Place Apartments 188 1.5% Knollwood Apartments 175 1.3% Lake Forest Apartments *179 2.6% Nob Hill Villa Apartments 199 1.6% Overlook Apartments 64 3.2% Point West Apartments 33 2.1% Post Ridge Apartments 92 1.3% Rivers Edge Apartments 55 1.5% South Port Apartments 54 1.4% Stratford Place Apartments 130 2.5% Village East Apartments * 14 0.7% * Represents the 1996 taxes and rates as the billings for 1997 have not been received as of the date of this filing. ITEM 3. LEGAL PROCEEDINGS In August 1997, an Insignia affiliate (the "Purchaser") commenced tender offers for limited partner interests in six real estate limited partnerships including the Partnership (collectively, the "Tender Partnerships"), in which various Insignia affiliates act as general partner. On September 5, 1997, a partnership claiming to be a holder of limited partnership units in one of the Tender Partnerships, filed a complaint with respect to a putative class action in the Court of Chancery in the State of Delaware in and for New Castle County (the "City Partnerships complaint") challenging the actions of the defendants (including Insignia and certain Insignia affiliates) in connection with the tender offers. Neither the Partnership nor the General Partner were named as defendants in the action. The City Partnerships complaint alleges that, among other things, the defendants have intentionally mismanaged the Tender Partnerships and coerced the limited partners into selling their units pursuant to the tender offers for substantially lower prices than the units are worth. The plaintiffs also allege that the defendants breached an alleged duty to provide an independent analysis of the fair market value of the limited partnership units, failed to appoint a disinterested committee to review the tender offer and did not adequately consider other alternatives available to the limited partners. On September 8, 1997, persons claiming to be holders of limited partnership units in the Tender Partnerships filed a complaint with respect to a putative class action and derivative suit in the Superior Court for the State of California for the County of San Mateo (the "Kline complaint") challenging the actions of the defendants (including Insignia, certain Insignia affiliates and the Tender Partnerships) in connection with the tender offers. The Kline complaint alleges that, among other things, the defendants have intentionally mismanaged the Tender Partnerships and that, as a result of the tender offers, the Purchaser will acquire effective voting control over the Tender Partnerships at substantially lower prices, than the units are worth. On September 24, 1997, the court denied the plaintiffs' application for a temporary restraining order and their request for preliminary injunctive relief preventing the completion of the tender offers. On September 10, 1997, persons claiming to be holders of limited partnership units in the Tender Partnerships filed a complaint with respect to a putative class action and derivative suit in the Superior Court for the State of California for the County of Alameda (the "Heller complaint") challenging the actions of the defendants (including Insignia, certain Insignia affiliates and the Tender Partnerships) in connection with the tender offers. The Heller complaint alleges that, among other things, the defendants have intentionally mismanaged the Tender Partnerships and that, as a result of the tender offers, the Purchaser will acquire effective voting control of the Tender Partnerships at substantially lower prices than the units are worth. The Plaintiffs also allege that the defendants breached an alleged duty to retain an independent advisor to consider alternatives to the tender offers. The General Partner believes that the allegations contained in the City Partnerships, Kline and Heller complaints are without merit and has been advised that the plaintiffs in each such action intend to discontinue the actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Unit holders of the Partnership did not vote on any matter during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED SECURITY HOLDER MATTERS (A) No established trading market for the Partnership's Units exists, nor is one expected to develop. (B) Title of Class Number of Unitholders of Record Limited Partnership Units 12,132 as of December 31, 1997 (C) In October 1997, the Partnership paid a distribution attributable to cash flow from operations of approximately $1,050,000. In March 1997, the General Partner declared and paid distributions attributable to cash flow from operations totaling approximately $550,000 and approximately $903,000 representing a return of capital. Cumulative distributions to the Limited Partners since the inception of the Partnership totaled approximately $30,403,000 at December 31, 1997. During 1996, the Partnership paid distributions attributable to cash flow from operations of approximately $4,538,000 and approximately $71,000 representing a return of capital. In conjunction with the transfer of funds from certain majority-owned sub-tier limited partnerships to the Partnership, approximately $36,000 was distributed to the general partners of the majority-owned sub-tier limited partnerships. During 1995, the Partnership paid distributions attributable to cash flow from operations of approximately $921,000 to the Partners. Also, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations". ITEM 6. SELECTED FINANCIAL DATA The following table sets forth a summary of certain financial data for the Partnership. Certain reclassifications have been made to the 1993 through 1996 information to conform to the 1997 presentation. This summary should be read in conjunction with the Partnership's consolidated financial statements and notes thereto appearing in "Item 8 - Financial Statements and Supplementary Data."
Years Ended December 31, (in thousands, except per unit data) Consolidated Statements 1997 1996 1995 1994 1993 of Operations Revenues $ 29,084 $ 28,137 $ 27,282 $ 27,905 $ 27,263 Expenses (28,670) (29,010) (28,522) (32,325) (33,972) Income (loss) from operations 414 (873) (1,240) (4,420) (6,709) Gain on dispositions of investment property -- -- -- 9,523 -- Reorganization expense -- -- -- -- (368) Gain on sale of investments -- -- -- -- 75 Income (loss) before extraordinary items 414 (873) (1,240) 5,103 (7,002) Extraordinary items (47) 2,909 43 6,614 (272) Net income (loss) $ 367 $ 2,036 $ (1,197) $ 11,717 $ (7,274) Net income (loss) per weighted Limited Partnership Unit: Income (loss) from operations $ 1.15 $ (2.45) $ (3.47) $ (12.38) $ (18.78) Gain on dispositions of investment property -- -- -- 26.67 -- Reorganization expense -- -- -- -- (1.03) Gain on sale of securities available for sale -- -- -- -- .21 Income (loss) before extraordinary items 1.15 (2.45) (3.47) 14.29 (19.60) Extraordinary items (.12) 8.15 .12 18.52 (.76) Net income (loss) $ 1.03 $ 5.70 $ (3.35) $ 32.81 $ (20.36) Distributions per Limited Partnership Unit $ 7.01 $ 12.91 $ 2.58 $ -- $ -- Limited Partnership Units outstanding 342,773 342,783 342,783 342,819 342,951 Consolidated Balance Sheets Total assets $ 52,381 $ 53,844 $ 61,146 $ 56,812 $ 67,683 Mortgage notes payable $ 72,439 $ 71,763 $ 76,336 $ 70,825 $ 92,525
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The operations of the Partnership primarily include owning, operating and ultimately disposing of income-producing real properties for the benefit of its Partners. Therefore, the following discussion of operations, liquidity and capital resources will focus on these activities and should be read in conjunction with "Item 8 - Financial Statements and Supplementary Data" and the notes related thereto included elsewhere in this report. RESULTS OF OPERATIONS The Partnership's income before extraordinary items totaled approximately $414,000 for the year ended December 31, 1997, compared to a loss of approximately $873,000 for 1996 and a loss before extraordinary items of $1,240,000 for 1995. For the year ended December 31, 1997, an increase in rental income and an overall decrease in expenses, resulted in income before extraordinary items. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. 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. 1997 COMPARED TO 1996 Revenues: Rental income increased for the year ended December 31 1997, compared to the year ended December 31, 1996, due to increased rental rates at all of the Partnership's investment properties, except the Citadel Apartments, accompanied by overall consistent occupancy levels. Expenses: General and administrative expenses decreased for the year ended December 31, 1997, compared to the year ended December 31, 1996, due primarily to a decrease in the special 9% management fees on distributions from operating cash flows. The Partnership distributed approximately $1,600,000 and $4,538,000, respectively, from operating cash flow for the year ended December 31, 1997 and 1996. Operating expenses increased primarily due to increased utility costs at several properties due to an increase in rates. Also, contributing to increased operating costs were higher rental concessions resulting from efforts to increase occupancy. An increase in maintenance expense, which also contributes to increased operating costs, is due to parking lot repairs and improvements and interior and exterior painting projects at Chimney Hill Apartments, Post Ridge Apartments and Foothill Place Apartments. There was also a door and window replacement project at Arbors of Hermitage Apartments, as well as, an interior repair project on some of the units at Knollwood Apartments and South Port Apartments. Interest expense decreased primarily due to the refinancing in late 1996 of the mortgage encumbering Post Ridge Apartments, which resulted in a lower interest rate. This decrease was partially offset by an increase in interest expense at Lake Forest Apartments due to a refinancing of its mortgage in November 1996. Although the new loan bears a lower interest rate, the principal balance increased from approximately $4,100,000 to approximately $4,700,000. Property tax expense increased for the year ended December 31, 1997, as compared to the year ended December 31, 1996, due to increased assessments at several of the Partnership's investment properties. These tax bills are currently under appeal. Included in operating expense for the year ended December 31, 1997, is approximately $1,269,000 of major repairs and maintenance comprised primarily of major landscaping, parking lot repairs, exterior painting and exterior building repairs. Included in operating expense for the year ended December 31, 1996 is approximately $798,000 of major repairs and maintenance comprised primarily of major landscaping, exterior building improvements and parking lot repairs. On November 18, 1997, the Partnership refinanced the mortgage encumbering the South Port Apartments. The refinancing replaced indebtedness of $3,432,000, including accrued interest of approximately $18,000, with a new mortgage in the amount of $4,500,000. The mortgage was refinanced at a rate equal to 7.19%, compared to the prior rate of 10.85% and matures on December 1, 2004. Total capitalized loan costs were $120,000. The Partnership paid approximately $34,000 in prepayment penalties and wrote off $13,000 in unamortized loan costs, resulting in an extraordinary loss on extinguishment of debt in the amount of approximately $47,000. During 1997, several storms caused damage to the Foothill Place Apartments. In addition, minor fire damage occurred at the Foothill Place Apartments and the Arbours of Hermitage Apartments. The insurance proceeds received less the cost of repairs plus the write-off of assets that were replaced as a result of these casualties resulted in a net casualty loss for these events of $46,000, which is included in Operating expenses for the year ended December 31, 1997. 1996 COMPARED TO 1995 Revenues: Rental income increased for the year ended December 31, 1996, compared to the corresponding period ended December 31, 1995, due primarily to an increase in rental rates at all of the Partnership's properties, partially offset by a decrease in occupancy at several of the Partnership's properties. Interest and other income decreased for 1996 compared to 1995, due primarily to the receipt in 1995 of a tax refund for Chimney Hill for the years of 1992, 1993 and 1994, and due to the receipt of a non-recurring dividend on the Southmark Preferred Stock. Expenses: Operating expenses increased for 1996 compared to 1995, due primarily to increased maintenance expenses incurred in efforts to increase the curb appeal of several of the Partnership's properties and increased concession expense in efforts to increase occupancy. Depreciation expense increased for the year ended December 31, 1996, compared to the year ended December 31, 1995, due primarily to the addition of approximately $5,000,000 in property improvements and replacements during 1996. Interest expense in 1996 decreased compared to 1995, due to the refinancing of seven of the Partnership's properties in December of 1995 and two properties in November of 1996 at lower interest rates, and due to the Point West Apartments' first-lien note being paid off as discussed below. General and administrative expenses decreased for the year ended December 31, 1996, compared to the year ended December 31, 1995, due to decreased legal, printing and postage costs associated with the Partnership's required responses to various tender offers as well as increased expense reimbursements related to the combined efforts of the Dallas and Greenville partnership administration staffs during the transition period in the first and second quarters of 1995. The increased costs related to the transition efforts were incurred to minimize any disruption in the year-end reporting function including the financial reporting and K-1 preparation and distribution. In February of 1996, the $484,000 balance of the first-lien note secured by the Point West Apartments, with an original maturity of May 2001, was paid off to retire debt with interest rates higher than the current market rate. As a result of the note payoff, the Partnership paid approximately $5,000 in prepayment penalties which resulted in an extraordinary loss on retirement of debt. Prior to November 1996, Lake Forest Apartments ("Lake Forest") secured a mortgage note guaranteed by the U.S. Department of Housing and Urban Development ("HUD") totaling approximately $4,100,000. In November 1996, the Partnership refinanced this mortgage note by obtaining a new mortgage note of approximately $4,700,000 secured by Lake Forest. Under the terms of the refinancing agreement, the new mortgage note bears interest at 7.33%, requires monthly payments of interest only and matures in November 2003. As a result of the refinancing, the Partnership paid approximately $4,000 in prepayment penalties which resulted in an extraordinary loss on refinancing. The Post Ridge Apartments ("Post Ridge") formerly secured a mortgage note totaling approximately $4,200,000, which was guaranteed by HUD. Operating cash flow from Post Ridge did not support its scheduled debt service payments. As a result, in January 1991, the Partnership suspended scheduled debt service for Post Ridge. From 1991 through March 1995, the Partnership remitted excess cash flow from the property's operations as debt service. On March 28, 1995, this debt was sold to an unaffiliated third party. Accordingly, since the closing of the sale on May 8, 1995, this debt is no longer regulated by HUD. In September of 1996, the Partnership entered into an interim financing arrangement and refinanced the non-recourse mortgage note of approximately $4,200,000 which was secured by Post Ridge Apartments. Under the terms of the interim financing arrangement, the new $4,100,000 mortgage note bore interest at 8% through October 31, 1996, and from November 1, 1996, through the maturity date of November 15, 1996, the note bore interest at a rate equal to 2.5% plus the average one month LIBOR (7.875%). As a result of this refinancing, the Partnership realized a $16,000 gain on the forgiveness of accrued interest, a $61,000 gain on the forgiveness of advances from prior years, and a $158,000 loss on the write off of loan costs which resulted in a net extraordinary loss on refinancing of $81,000. In November 1996, the General Partner obtained permanent financing by securing a new mortgage note of approximately $4,100,000 collateralized by Post Ridge. Under the terms of the agreement this mortgage note bears interest at 7.33%, requires monthly payments of interest only and matures in November 2003. Approximately $2,500,000 of non-recourse mortgage debt secured by the Metro Centre Office Building, located in Southern California, matured July 1, 1995. The property historically had difficulty making its scheduled debt service payments and since 1985, the property made quarterly cash flow payments pursuant to a modified and restructured loan agreement, however, no payments were made in 1995. Given existing economic conditions in Southern California, property operations were not expected to improve sufficiently to enable the Partnership to refinance the existing indebtedness under prevailing market conditions. In September 1995, a Notice of Default and Election to Sell Under Deed of Trust was filed by the lender. The Partnership did not contest this foreclosure action and the property was foreclosed upon on February 7, 1996, resulting in an extraordinary gain on forgiveness of debt of approximately $2,999,000 to the Partnership. LIQUIDITY AND CAPITAL RESOURCES A detailed discussion of the General Partner's current operating plan is described in "Item 1 - Description of Business". 1997 COMPARED TO 1996 At December 31, 1997, the Partnership held unrestricted cash and cash equivalents of approximately $12,090,000 compared to $9,239,000 at December 31, 1996. The increase in net cash provided by operating activities for the year ended December 31, 1997, compared to the year ended December 31, 1996, is due to an increase in net income as adjusted for depreciation and the extraordinary gain on forgiveness of debt in 1996. Partially offsetting this increase was an increase in receivables and deposits due to an increase in tax and insurance escrows. Also contributing to the increase in net cash provided by operating activities was an increase in accrued taxes payable. The increases in both the escrows and accrued taxes are due to the timing of payments. Net cash used in investing activities decreased primarily due to a decreased level of property improvements and replacements during 1997. This was offset by a decrease in the proceeds received from the sale of investments. Net cash used in financing activities decreased as a result of decreased distributions to partners during the year ended December 31, 1997, compared to the corresponding period of 1996. Also, proceeds received in excess of the cash used as a result of the refinancing of the mortgage indebtedness secured by South Port Apartments contributed to the decrease in net cash used in financing activities. 1996 COMPARED TO 1995 As of December 31, 1996, the Partnership held unrestricted cash and cash equivalents of approximately $9,239,000 compared to approximately $10,865,000 at December 31, 1995. Net cash provided by operating activities increased primarily due to increased rental revenues, the receipt of an insurance refund of approximately $124,000, and an escrow receipt in 1996 from the refinancing of the Knollwood Apartments debt in December of 1995. These items were partially offset by a decrease in accounts payable and accrued expenses due to the timing of payments. Net cash used in investing activities increased as the result of increased property improvements and replacements, partially offset by increased receipts from restricted escrows. Net cash used in financing activities increased due to significantly increased distributions to partners in 1996, as well as decreased net proceeds from refinancings. CAPITAL RESOURCES 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 properties to adequately maintain the physical assets and meet 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 $72,439,000 matures from December 1998 to December 2005 with balloon payments due at maturity, at which time the properties will either be refinanced or sold. Future cash distributions will depend on the levels of net cash generated from operations, capital expenditure requirements, property sales and the availability of cash reserves. During the years ended December 31, 1997 and 1996, cash distributions of approximately $2,515,000 and $4,645,000, respectively, were declared and paid. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies. On September 25, 1995, the partners were proxied and approved a reduction of the capital reserve requirements to $500 per apartment unit and $1.00 per square foot of gross leasable commercial space owned by the Partnership, or approximately $2,200,000. During 1996, the Metro Centre Office Building was foreclosed on by the lender thereby lowering reserve requirements further. The replacement reserve requirement at the remaining residential properties is approximately $2,100,000. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including unrestricted cash and cash equivalents, tenant security deposits and investments, totaling approximately $12,100,000 at December 31, 1997, exceeded the Partnership's reserve requirements of approximately $2,100,000. DEBT MATURITIES IN 1995 Approximately $14,300,000 of non-recourse mortgage debt secured by the Foothill Place Apartments and the Chimney Hill Apartments matured in 1994. The Partnership exercised its option to extend the debt maturities until September 1995, by paying a 1% loan extension fee of $143,000 to the current lender as provided for in the loan agreement. In September 1995, the Partnership signed an extension agreement extending the maturity date of the notes to June 1997. These properties and five of the Partnership's other properties were refinanced in December of 1995. Prior to March 1995, the Nob Hill Villa Apartments secured two non-recourse mortgage notes totaling approximately $5,800,000. One of the notes, a $3,800,000 first lien mortgage, was scheduled to mature in November 1995. In March 1995, the General Partner refinanced these mortgage notes by obtaining a new mortgage note of approximately $7,500,000 secured by Nob Hill Villa. See "Note C" in the Notes to Consolidated Financial Statements in "Item 8" for the principle terms of the mortgages secured by the Partnership's properties. SALE AND DISPOSITION OF REAL ESTATE In August 1994, the Partnership sold the Denbigh Woods Apartments. In connection with the sale, the Partnership accepted a $1,200,000 wrap note receivable and received net sales proceeds of approximately $881,000. The wrap note receivable bears interest at an annual rate of 9%, requires monthly payments of principal and interest totaling $11,814 and matures in March 1996. The Partnership has negotiated with the purchaser to extend the wrap note until April 1998. The Partnership remains obligated under two underlying first-liens totaling approximately $1,248,000 which are secured by the Denbigh Woods Apartments. Pursuant to the sale contract the Partnership received from the purchaser, a capital improvement escrow totaling $150,000. After completion in 1997 of certain repairs and capital improvements at the property, the Partnership fully reimbursed the purchaser the balance remaining in the escrow account. The holder of the underlying first-lien mortgages did not pre-approve the sale and, as a result, since the sale in 1994 the Partnership has been in technical default on the two first-lien mortgages. Although the holder of the mortgages has the right to accelerate the notes at any time, no such intentions have been indicated by the holder of the mortgages. YEAR 2000 The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. OTHER Certain items discussed in this annual report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this annual report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED CAPITAL PROPERTIES IV LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets - December 31, 1997 and 1996 Consolidated Statements of Operations - Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Properties IV We have audited the accompanying consolidated balance sheets of Consolidated Capital Properties IV as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. 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 Properties IV at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Greenville, South Carolina January 23, 1998, except for Note M, as to which the date is March 17, 1998 CONSOLIDATED CAPITAL PROPERTIES IV CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) Years Ended December 31, 1997 1996 Assets Cash and cash equivalents $ 12,090 $ 9,239 Investments -- 492 Receivables and deposits 1,999 1,856 Note and interest receivable 1,081 1,124 Restricted escrows 3,174 2,910 Other assets 1,874 2,029 Investment Properties: Land 12,491 12,491 Buildings and personal property 118,162 115,637 130,653 128,128 Less accumulated depreciation (98,490) (91,934) 32,163 36,194 $ 52,381 $ 53,844 Liabilities and Partners' Deficit Liabilities Accounts payable $ 526 $ 644 Tenant security deposits 580 659 Accrued taxes 1,312 1,105 Other liabilities 902 915 Mortgage notes payable 72,439 71,763 75,759 75,086 Partners' Deficit General partner (6,174) (6,089) Limited partners (343,106 units issued and 342,773 and 342,783 units outstanding in 1997 and 1996, respectively) (17,204) (15,153) (23,378) (21,242) $ 52,381 $ 53,844 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL PROPERTIES IV CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1997 1996 1995 Revenues: Rental income $ 27,143 $ 26,102 $ 25,101 Other income 1,941 2,035 2,181 Total revenues 29,084 28,137 27,282 Expenses: Operating 13,359 12,857 11,952 General and administrative 990 1,317 1,488 Depreciation 6,558 7,048 6,667 Interest 5,868 6,052 6,544 Property taxes 1,895 1,736 1,671 Write down of investment property -- -- 200 Total expenses 28,670 29,010 28,522 Income (loss) before extraordinary items 414 (873) (1,240) Extraordinary (loss) gain on refinancing (47) (85) 250 Extraordinary loss on retirement of debt -- (5) (207) Extraordinary gain on forgiveness of debt -- 2,999 -- Net income (loss) $ 367 $ 2,036 $ (1,197) Net income (loss) allocated to general partner (4%) $ 15 $ 81 $ (48) Net income (loss) allocated to limited partners (96%) 352 1,955 (1,149) Net income (loss) $ 367 $ 2,036 $ (1,197) Net income (loss) per limited partnership unit: Income (loss) before extraordinary items $ 1.15 $ (2.45) $ (3.47) Extraordinary (loss) gain on refinance (.12) (.24) .70 Extraordinary loss on retirement of debt -- (.01) (.58) Extraordinary gain on forgiveness of debt -- 8.40 -- Net income (loss) per limited partnership unit: $ 1.03 $ 5.70 $ (3.35) See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL PROPERTIES IV CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data) Limited Total Partnership General Limited Partners' Units Partner Partners Deficit Original capital contributions 343,106 $ 1 $171,553 $171,554 Partners' deficit at December 31, 1994 342,783 (5,866) (10,649) (16,515) Net loss for the year ended December 31, 1995 -- (48) (1,149) (1,197) Distributions paid -- (37) (884) (921) Partners' deficit at December 31, 1995 342,783 (5,951) (12,682) (18,633) Net income for the year ended December 31, 1996 -- 81 1,955 2,036 Distributions paid -- (219) (4,426) (4,645) Partners' deficit at December 31, 1996 342,783 (6,089) (15,153) (21,242) Net income for the year ended December 31, 1997 -- 15 352 367 Distributions paid -- (100) (2,403) (2,503) Abandonment of limited partnership units (10) -- -- -- Partners' deficit at December 31, 1997 342,773 $(6,174) $(17,204) $(23,378) See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1997 1996 1995 Cash flows from operating activities: Net income (loss) $ 367 $ 2,036 $ (1,197) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,842 7,327 6,952 Loss on disposition of investment property -- 101 -- Write down of investment property -- -- 200 Casualty loss (gain) 46 -- (185) Extraordinary loss (gain) on refinancing 47 85 (250) Extraordinary loss on retirement of debt -- 5 207 Extraordinary gain on forgiveness of debt -- (2,999) -- Change in accounts: Receivables and deposits and other assets (96) 754 (888) Accounts payable and accrued expenses (57) (499) 1,026 Net cash provided by operating activities 7,149 6,810 5,865 Cash flows from investing activities: Property improvements and replacements (2,559) (4,945) (3,325) Purchase of investments -- -- (7,176) Proceeds from sale of investments 492 2,122 8,882 Collections on notes receivable 43 39 33 Net deposits to restricted escrows (264) (144) (1,185) Net insurance proceeds from casualty loss (gain) (29) -- 185 Net cash used in investing activities (2,317) (2,928) (2,586) Cash flows from financing activities: Payments on notes payable (409) (497) (749) Repayment of notes payable (3,415) (12,878) (37,106) Proceeds from long-term borrowings 4,500 12,800 43,530 Prepayment penalties (34) (9) (179) Loan costs paid (120) (279) (1,325) Distributions to partners (2,503) (4,645) (921) Net cash (used in) provided by financing activities (1,981) (5,508) 3,250 Net increase (decrease) in cash and cash equivalents 2,851 (1,626) 6,529 Cash and cash equivalents at beginning of year 9,239 10,865 4,336 Cash and cash equivalents at end of year $12,090 $ 9,239 $10,865 See Accompanying Notes to Consolidated Financial Statements
Supplemental Disclosures of Cash Flow Information and Non-Cash Activities: At December 31, 1997, accounts receivable and accounts payable were adjusted by $64,000 and $49,000, respectively, for non-cash activity. Cash paid for interest was approximately $5,596,000, $5,750,000 and $6,154,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Foreclosure In February of 1996, Metro Centre Office Building was foreclosed upon by the lender. In connection with this foreclosure, the following accounts were adjusted by the amounts noted below (in thousands). 1996 Tenant security deposits remitted to the lender $ (12) Prepaid expenses and other assets (5) Buildings and personal property (1,605) Accumulated depreciation 1,079 Accounts payable and accrued expenses 24 Interest payable 1,021 Notes payable 2,497 Extraordinary gain on forgiveness of debt (2,999) The net book value of the property approximated its fair value at the date of foreclosure. See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL PROPERTIES IV NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Consolidated Capital Properties IV (the "Partnership" or "Registrant"), a California limited partnership, was formed on September 22, 1981, to acquire and operate commercial and residential properties. Partnership operations commenced February 16, 1982, the date on which impound requirements were met. As of December 31, 1997, the Partnership operates 17 residential properties located in or near major urban areas in the United States. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC"), a Colorado corporation, was the corporate general partner and Consolidated Capital Management Company ("CCMC"), a California general partnership, was the non-corporate general partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc. ("CEI" 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 sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership, and the conversion of CCMC from a general partner to a Special Limited Partner, thereby leaving CEI as the sole general partner of the Partnership. On November 14, 1990, CCMC was dissolved and its Special Limited Partnership interest was divided among it's former partners. The Special Limited Partnership interest entitles the holder to the economic rights as they existed in their former classification as General Partnership interest but without the legal and authoritative rights of General Partnership interest. All of CEI's outstanding stock is owned by Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc. ("Insignia"). In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which an affiliate of Insignia acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, the Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity, and a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. At December 31, 1997, Insignia Properties, L.P., an affiliate of Insignia, owned a total of 95,817 Units of the Partnership. The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602. Consolidation The consolidated financial statements include the Partnership's equity interest in a joint-venture partnership which owns South Port Apartments. The Partnership has the ability to control the major operating and financial policies of this partnership. No minority interest has been reflected for the joint venture partnership because minority interests are limited to the extent of their equity capital, and losses in excess of the minority interest equity capital are charged against the Partnership's interest. The consolidated financial statements of the Partnership include its 99% limited partnership interests in Briar Bay Apartments Associates, Ltd., Post Ridge Associates, Ltd., Concap River's Edge Associates, Ltd, Concap Stratford Associates, Ltd. and its wholly-owned partnerships. The Partnership may remove the General Partner of its 99% owned partnerships; therefore, the partnerships are controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks, money market funds, and certificates of deposits with original maturities of less than ninety days. See "Notes C and F" for supplemental information with respect to noncash investing and financing activity. Security deposits The Partnership requires security deposits from new lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates the apartment, provided the tenant has not damaged its space and is current on its rental payments. Restricted assets The Partnership maintained cash related to its U.S. Housing and Urban Development ("HUD") property in unrestricted cash of approximately $801,000 at December 31, 1995. Due to refinancing activities in 1996, as discussed in "Note C", there are no remaining properties secured by HUD loans at December 31, 1997. The Partnership maintained the following restricted cash balances in Restricted Escrows and receivables and deposits (amounts in thousands): As of December 31, 1997 1996 Tax and Insurance Escrows $1,269 $1,017 Repair and Maintenance Escrows $3,174 $2,910 Investments in Real Estate Investment properties are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Depreciation Buildings, improvements and furniture and fixtures are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 40 years. Investments In 1994, the Partnership adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments consisting primarily of U.S. Treasury Notes with original maturities of more than ninety days, are considered to be held-to-maturity securities. As the Investments' fair values approximate their cost, any unrealized gains or losses are immaterial and therefore, have not been recorded in the accompanying financial statements. The cost of Investments sold is determined using the specific identification method. The Investments matured as follows (dollar amounts in thousands): Description Cost Maturity U.S. Treasury Notes $492 January 1997 Investments at December 31, 1996 consisted of approximately $492,000 in U.S. Treasury Notes. Leases The Partnership leases its residential properties under short-term operating leases. Lease terms are generally one year or less in duration. The Partnership owned one commercial office building (Metro Centre Office Building) which was foreclosed upon in 1996 (See "Note C"). Loan Costs Loan costs, net of accumulated amortization, of $1,677,000 and $1,855,000 at December 31, 1997 and 1996, respectively, are amortized using the straight-line method over the lives of the related mortgage notes. Unamortized loan costs are included in Other assets. Amortization of loan costs is included in Interest expense. Income Taxes The Partnership is classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments based on estimated borrowing rates currently available to the Partnership, approximates its carrying amount. Allocation of Net Income and Net Loss The Partnership Agreement provides for net losses and distributions of distributable cash from operations to be allocated, generally 96% to the Limited Partners and 4% to the General Partner (inclusive of the Special Limited Partners). Net Income (Loss) Per Limited Partnership Unit Net income (loss) per Limited Partnership 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 the number of Units outstanding at the beginning of each year. Reclassifications Certain reclassifications have been made to the 1996 and 1995 information to conform to the 1997 presentation. Advertising Costs Advertising costs of approximately $441,000, $375,000, and $321,000 in 1997, 1996 and 1995, respectively, are charged to expense as incurred and are included in Operating expenses. 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 accompanying notes. Actual results could differ from those estimates. NOTE B - RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and affiliates of Insignia for the management and administration of all of the partnership activities, as provided in the Partnership Agreement. The following transactions with the General Partner and affiliates of Insignia were charged to expense in 1997, 1996 and 1995: 1997 1996 1995 (in thousands) Property management fees (included in operating expenses) $ 1,413 $ 1,316 $ 1,223 Reimbursements for services of affiliates, including $65,000, $32,000 and $11,000 in construction services reimbursements in 1997, 1996 and 1995, respectively (included in investment property and general and administrative and operating expenses) 608 605 645 The Partnership has paid the property management fees noted above based on collected gross rental revenues for property management services in each of the years ended December 31, 1997, 1996 and 1995, respectively. On February 15, 1995, an affiliate of Insignia assumed day-to-day property management responsibilities for Lake Forest and Post Ridge Apartments. On February 7, 1996, the Metro Centre Office Building was foreclosed upon by the lender and affiliates of Insignia ceased to manage the property. On March 25, 1997, an affiliate of Insignia assumed day-to-day property management responsibilities for South Port Apartments. The Limited Partnership Agreement ("Partnership Agreement") provides for a special management fee equal to 9% of the total distributions made to the limited partners from cash flow provided by operations to be paid to the General Partner for executive and administrative management services. The Partnership paid approximately $138,000, $392,000 and $80,000 under this provision of the Partnership Agreement to affiliates of the General Partner for the years ended December 31, 1997, 1996, and 1995 respectively. These fees are included in general and administrative expenses. During the year ended December 31, 1995, the Partnership incurred approximately $42,000 of expense reimbursements to an affiliate of the General Partner related to evaluating the feasibility of refinancing the debt on several of the Partnership's investment properties. The Partnership has also paid this affiliate approximately $13,000, $22,000 and $123,000 in 1997, 1996 and 1995, respectively, for loan costs which were capitalized and included in "Other assets" on the Consolidated Balance Sheets. These loan costs related to the refinancing of one of the Partnership's properties in 1997, two in 1996 and eight properties in 1995 (See "Note C"). For the period January 1, 1996, to August 31, 1997, the Partnership insured 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 master policy. The agent assumed the financial obligations to the affiliate of the General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. On January 20, 1995, an affiliate of the General Partner, Insignia CCP IV Acquisition, L.L.C., closed an offer to purchase Units (the "Tender Offer") for a cash price of $60.00 per Unit to Limited Partners of record as of December 15, 1994. Approximately 3,370 Limited Partners holding 64,343 Units (18.77% of total Units) accepted the Tender Offer and sold their Units to Insignia CCP IV Acquisition, L.L.C. effective January 20, 1995, for an aggregate sales price of approximately $3,900,000. On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender offers for limited partnership interests in six real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 85,000 of the outstanding units of limited partnership interest in the Partnership, at $140.00 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on August 28, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. On October 6, 1997, the Insignia affiliate closed the tender offer and acquired 29,618 units of limited partnership interest (8.64% of total Units). In addition, because of these conflicts of interest, including as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interest in the Partnership may not always be consistent with the best interests of the other limited partners. NOTE C - NOTES AND INTEREST PAYABLE AND RECEIVABLE Notes Payable
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1997 Interest Rate Date Maturity (dollar amounts in thousands) The Apartments $ 3,429 $ 29 8.34% 9/00 $ 3,244 Arbours of Hermitage 5,650 33(1) 6.95% 12/05 5,650 Briar Bay Racquet Club 3,500 20(1) 6.95% 12/05 3,500 Chimney Hill Apartments 5,400 31(1) 6.95% 12/05 5,400 Citadel Apartments 4,749 40 8.38% 10/00 4,488 Citadel Village Apartments 2,450 14(1) 6.95% 12/05 2,450 Foothill Place Apartments 10,100 58(1) 6.95% 12/05 10,100 Knollwood Apartments 6,780 39(1) 6.95% 12/05 6,780 Lake Forest Apartments 4,700 29(1) 7.33% 11/03 4,700 Nob Hill Villa Apartments 7,267 64 9.20% 4/05 6,250 Overlook Apartments 1,850 19 10.50% 12/98 1,817 Post Ridge Apartments 4,050 25(1) 7.33% 11/03 4,050 Rivers Edge Apartments 2,002 17 8.40% 9/00 1,895 South Port Apartments 4,500 31 7.19% 12/04 4,119 Stratford Place Apartments 2,614 23 8.65% 9/00 2,478 Village East Apartments 2,150 12(1) 6.95% 12/05 2,150 $71,191 $69,071 (1) Monthly payments of interest only at the stated rate until maturity.
The notes payable represent borrowings on the properties purchased by the Partnership. The notes are non-recourse, and are collateralized by deeds of trust on the investment properties. The notes mature between 1998 and 2005 and bear interest at rates ranging from 6.95% to 10.50%. Various mortgages require prepayment penalties if repaid prior to maturity. The carrying value of the Partnership's aggregate debt approximates its estimated fair value. Summary of Maturities Subsequent to December 31, 1997 Future annual principal payments required under the terms of mortgage notes payable are as follows (amounts in thousands): Years Ended December 31, 1998 $ 2,958 1999 429 2000 12,485 2001 203 2002 699 Thereafter 55,665 Total $ 72,439(a) (a) This table includes the underlying mortgage debt related to the Denbigh Village Apartments as discussed below. Approximately $2,500,000 of non-recourse mortgage debt secured by the Metro Centre Office Building, located in Southern California, matured July 1, 1995. The property historically had difficulty making its scheduled debt service payments and, since 1985, the property had made quarterly cash flow payments pursuant to a modified and restructured loan agreement, however, no payments were made in 1995. Given existing economic conditions in Southern California, property operations were not expected to improve sufficiently to enable the Partnership to refinance the existing indebtedness under prevailing market conditions. In September 1995, a Notice of Default and Election to Sell Under Deed of Trust was filed by the lender. The Partnership did not contest this foreclosure action and the property was foreclosed upon on February 7, 1996, resulting in an extraordinary gain on forgiveness of debt of approximately $2,999,000 to the Partnership. In March of 1995, the Partnership refinanced two non-recourse mortgage notes totaling approximately $5,800,000 which were secured by the Nob Hill Villa Apartments. Under the terms of the refinancing agreement, the new $7,500,000 mortgage note bears interest at 9.2% and matures in April 2005. As a result of the refinancing, the Partnership realized a $250,000 discount on the second mortgage which resulted in an extraordinary gain on refinancing. Total capitalized loan costs incurred in 1995 for the refinancing totaled approximately $304,000 and are being amortized over the life of the loan. Restricted Escrows required under the Nob Hill Villa refinancing are as follows: CAPITAL IMPROVEMENT RESERVES - At the time of the refinancing of the mortgage note payable, $219,000 of the proceeds were designated for "Capital Improvement Escrows" for certain capital improvements. At December 31, 1997, the escrow balance is approximately $14,000. In December of 1995, the Partnership refinanced approximately $31,500,000 of mortgage indebtedness which encumbers the Arbour East, Briar Bay, Chimney Hills, Citadel Village, Foothill Place, Knollwood and Village East Apartments. As a result of the refinancings, the Partnership paid approximately $179,000 in prepayment penalties and wrote-off approximately $28,000 in unamortized loan costs. As a result, the Partnership recorded an extraordinary loss from the refinancing of approximately $207,000. The new mortgage indebtedness of $36,030,000 carries a stated interest rate of 6.95%, with interest-only payments and a balloon payment due December 1, 2005. Total capitalized loan costs incurred in December 1995, for the seven refinancings totaled approximately $1,002,000 and are being amortized over the life of the respective loans. Restricted Escrows required under the December 1995, refinancings are as follows: CAPITAL IMPROVEMENT RESERVES - At the time of the refinancings of the mortgage notes payable, $1,047,000 of the proceeds were designated for "Capital Improvement Escrows" for certain capital improvements. In 1996, an additional $97,500 was designated for "Capital Improvement Escrows" for Knollwood. At December 31, 1997, the balance of these reserves is approximately $146,000. REPLACEMENT RESERVE ACCOUNT - In addition to the Capital Improvement Reserves, Replacement Reserve Accounts of $507,000, which ranged from $191 to $325 per unit, were established with the refinancing proceeds for the refinanced properties. These funds were established to cover necessary repairs and replacements of existing improvements. At December 31, 1997, the balance of these reserves is approximately $1,107,000. In February of 1996, the $484,000 balance of the first-lien note secured by the Point West Apartments, with an original maturity of May 2001, was paid off to retire debt with interest rates higher than the current market rate. As a result of the note payoff, the Partnership paid approximately $5,000 in prepayment penalties which resulted in an extraordinary loss on refinancing. Prior to November 1996, Lake Forest Apartments ("Lake Forest") secured a mortgage note guaranteed by the U.S. Department of Housing and Urban Development ("HUD") totaling approximately $4,100,000. In November 1996, the Partnership refinanced this mortgage note by obtaining a new mortgage note of approximately $4,700,000 secured by Lake Forest. Under the terms of the refinancing agreement, the new mortgage note bears interest at 7.33% and matures in November 2003. As a result of the refinancing, the Partnership paid approximately $4,000 in prepayment penalties which resulted in an extraordinary loss on refinancing. Total capitalized loan costs incurred in 1996 for Lake Forest totaled approximately $133,000 and are being amortized over the life of the loan. Restricted escrows established at the Lake Forest refinancing are as follows: CAPITAL IMPROVEMENT RESERVES - At the time of the refinancing of the mortgage note payable, $555,000 of the proceeds were designated for "Capital Improvement Escrows" for certain capital improvements. At December 31, 1997, the balance of these reserves is approximately $354,000. The Post Ridge Apartments ("Post Ridge") formerly secured a mortgage note totaling approximately $4,200,000, which was guaranteed by HUD. Operating cash flow from Post Ridge did not support its scheduled debt service payments. As a result, in January 1991, the Partnership suspended scheduled debt service for Post Ridge. From 1991 through March 1995, the Partnership remitted excess cash flow from the property's operations as debt service. On March 28, 1995, this debt was sold to an unaffiliated third party. Accordingly, since the closing of the sale on May 8, 1995, this debt is no longer regulated by HUD. In September of 1996, the Partnership entered into an interim financing arrangement and refinanced the non-recourse mortgage note of approximately $4,200,000 which was secured by Post Ridge Apartments. Under the terms of the interim financing arrangement, the new $4,100,000 mortgage note bore interest at 8% through October 31, 1996, and from November 1, 1996, through the maturity date of November 15, 1996, the note bore interest at a rate equal to 2.5% plus the average one month LIBOR (7.875%). As a result of this refinancing, the Partnership realized a $16,000 gain on the forgiveness of accrued interest, a $61,000 gain on the forgiveness of advances from prior years, and a $158,000 loss on the write-off of loan costs which resulted in a net extraordinary loss on refinancing of $81,000. In November 1996, the General Partner obtained permanent financing by securing a new mortgage note of approximately $4,100,000 collateralized by Post Ridge. Under the terms of the agreement this mortgage note bears interest at 7.33% and matures in November 2003. Total capitalized loan costs incurred in 1996 for Post Ridge totaled approximately $122,000 and are being amortized over the life of the loan. Restricted escrows established at the Post Ridge refinancing are as follows: REPLACEMENT RESERVE ACCOUNT - At the time of the refinancing, approximately $384,000 of replacement reserve accounts were established to cover necessary repairs and replacements of existing improvements. At December 31, 1997, the balance of these reserves is approximately $441,000. On November 18, 1997, the Partnership refinanced the mortgage encumbering the South Port Apartments. The refinancing replaced indebtedness of $3,432,000, including accrued interest of approximately $18,000, with a new mortgage in the amount of $4,500,000. The mortgage was refinanced at a rate equal to 7.19%, compared to the prior rate of 10.85% and matures on December 1, 2004. Total capitalized loan costs were $120,000. The Partnership paid approximately $34,000 in prepayment penalties and wrote off $13,000 in unamortized loan costs, resulting in an extraordinary loss on extinguishment of debt in the amount of approximately $47,000. Restricted escrows established at the South Port refinancing are as follows: CAPITAL IMPROVEMENT RESERVES - At the time of the refinancing, approximately $283,000 of the proceeds were designated for "Capital Improvement Escrows" for certain capital improvements. At December 31, 1997, the escrow balance is approximately $283,000. Note Receivable on Sold Property: As of December 31, 1997 Underlying Note Mortgage Collateral Property Receivable Debt (in thousands) Denbigh Village Apartment complex - 138 units Newport News, Virginia $ 1,073 $ 1,248 When Denbigh Village Apartments was sold in August 1994 (see "Note F"), the Partnership accepted a promissory note which matured in March 1996. In March 1996, an extension, under the existing terms, was negotiated to extend the note until April 1997. The note matured and the principal outstanding was not repaid. The Partnership has now negotiated with the borrower to extend the terms of the note until April 1, 1998. All other terms of the note remained unchanged. The estimated value of the note receivable approximates its carrying value. Denbigh Village Apartments secures two underlying mortgage notes. The balance of the first mortgage is approximately $534,000 at December 31, 1997, has a stated interest rate of 9.5% and matures in December 2002. The balance of the second mortgage is approximately $714,000, has a stated interest rate of 9.5% and matures December 31, 1998. The estimated fair value of the Partnership's underlying mortgage debt secured by the Denbigh Village Apartments is approximately $1,321,000. This estimate represents a general approximation of possible value and is not necessarily indicative of the amounts the Partnership might pay in actual market transactions. NOTE D - COMMITMENTS The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies. On September 25, 1995, the partners were proxied and approved a reduction of the capital reserve requirements to $500 per apartment unit and $1.00 per square foot of gross leasable commercial space owned by the Partnership, or approximately $2,200,000. During 1996, the Metro Centre Office Building was foreclosed on by the lender thereby lowering reserve requirements further. The replacement reserve requirement at the remaining residential properties was reduced to approximately $2,100,000. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including unrestricted cash and cash equivalents, and investments, totaling approximately $12,100,000 at December 31, 1997, exceeded the Partnership's reserve requirements of approximately $2,100,000. NOTE E - ABANDONED LIMITED PARTNERSHIP UNITS In 1997, the number of Limited Partnership Units decreased by 10 units due to Limited Partners abandoning their Limited Partnership Units. In abandoning his or her Limited Partnership Units, a Limited Partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. However, the Limited Partner is allocated his or her share of income (loss) for that year. The income (loss) per Limited Partnership Unit in the accompanying statements of operations is calculated based on the number of units outstanding at the beginning of the year. NOTE F - SALE OF REAL ESTATE In August 1994, the Partnership sold the Denbigh Woods Apartments. In connection with the sale, the Partnership accepted a $1,200,000 wrap-note receivable and received net sales proceeds of $881,000. The wrap-note receivable accrued interest at an annual rate of 9%, required monthly payments of principal and interest totaling $11,814, and matured in March 1996. The Partnership negotiated with the purchaser to extend the note, at the same interest rate, until April 1997. The note matured and the principal outstanding was not repaid. The Partnership has now negotiated with the borrower to extend the terms of the note until April 1, 1998. All other terms of the note remain unchanged. Since the wrap-around promissory note is subordinate and inferior to the first-lien mortgages, the Partnership remains obligated under two underlying first-lien mortgages totaling approximately $1,248,000 which are secured by the Denbigh Woods Apartments. Pursuant to the sale contract, the Partnership received, from the purchaser, a capital improvement escrow totaling $150,000. After completion in 1997 of certain repairs and capital improvements at the property, the Partnership fully reimbursed the purchaser the balance remaining in the escrow account. The holder of the underlying first-lien mortgages did not pre-approve the sale and, as a result, since the sale in 1994 the Partnership has been in technical default on the two first-lien mortgages. Although the holder of the mortgages has the right to accelerate the notes at any time, no such intentions have been indicated by the holder of the mortgages. NOTE G - DISPOSITION OF REAL ESTATE In February 1996, Metro Centre Office Building was foreclosed upon by the lender. The 1996 and 1995 results of operations for Metro Centre Office Building are summarized in the following table (in thousands): For the Period From January 1 to February 7, 1996 1995 Revenues $ 22 $ 290 Loss from continuing operations (8) (164) Net income (loss) 2,991 (164) Income (loss) per limited Partnership Unit $ 8.38 $(0.46) NOTE H - DISTRIBUTIONS In October 1997, the General Partner declared and paid distributions attributable to cash flow from operations totaling approximately $1,050,000. In March 1997, the General Partner declared and paid distributions attributable to cash flow from operations totaling approximately $550,000 and approximately $903,000 representing a return of capital. In March 1996, the General Partner declared and paid distributions attributable to cash flow from operations totaling approximately $3,617,000 and approximately $71,000 representing a return of capital. In conjunction with the transfer of funds from certain majority-owned sub-tier limited partnerships to the Partnership, approximately $36,000 was distributed to the general partners of the majority-owned sub-tier limited partnerships. In September 1996, the General Partner declared and paid distributions attributable to cash flow from operations totaling approximately $921,000. NOTE I - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (amounts in thousands)
Initial Cost To Partnership Cost Buildings Capitalized and Related (Written-Down) Personal Subsequent to Description Encumbrances Land Property Acquisition Knollwood Apartments $ 6,780 $ 345 $ 7,065 $ 3,029 Chimney Hill Apartments 5,400 659 7,188 2,758 Briar Bay Racquet Club Apartments 3,500 1,084 5,271 1,329 Citadel Village Apartments 2,450 337 3,334 187 Village East Apartments 2,150 184 2,236 942 Rivers Edge Apartments 2,002 512 2,160 568 Nob Hill Villa Apartments 7,267 490 8,922 2,920 Citadel Apartments 4,749 695 5,619 1,180 Post Ridge Apartments 4,050 143 2,498 1,725 Arbours of Hermitage Apartments 5,650 547 8,574 3,032 South Port Apartments 4,500 1,175 6,496 189 The Apartments Apartments 3,429 438 6,218 1,852 Lake Forest Apartments 4,700 692 5,811 2,444 Foothill Place Apartments 10,100 3,492 9,435 2,074 Stratford Place Apartments 2,614 1,186 4,628 1,586 Overlook Apartments 1,850 397 3,573 458 Point West Apartments -- 285 2,919 (228) Totals $71,191 $12,661 $91,947 $26,045
Gross Amount At Which Carried At December 31, 1997 Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Knollwood Apts. $ 345 $10,094 $ 10,439 $ 9,011 1972 7/82 5-18 Chimney Hill Apts. 659 9,946 10,605 9,285 1973 8/82 5-18 Briar Bay Racquet Club Apts. 1,084 6,600 7,684 6,237 1975 9/82 5-18 Citadel Village Apts. 337 3,521 3,858 3,306 1974 12/82 5-18 Village East Apts. 184 3,178 3,362 2,924 1973 12/82 5-18 Rivers Edge Apts. 512 2,728 3,240 2,501 1976 4/83 5-18 Nob Hill Villa Apts. 490 11,842 12,332 10,578 1971 4/83 5-18 Citadel Apts. 695 6,799 7,494 6,237 1973 5/83 5-18 Post Ridge Apts. 143 4,223 4,366 3,621 1972 7/82 5-18 Arbours of Hermitage Apts. 547 11,606 12,153 9,919 1973 9/83 5-18 South Port Apts. 1,175 6,685 7,860 5,919 -- 11/83 5-18 The Apartments Apts. 438 8,070 8,508 5,876 1973 4/84 5-18 Lake Forest Apts. 692 8,255 8,947 5,629 1971 4/84 5-18 Foothill Place Apts. 3,402 11,599 15,001 8,263 1973 8/85 5-18 Stratford Place Apts. 1,186 6,214 7,400 3,895 1975 8/85 5-20 Overlook Apts. 397 4,031 4,428 3,181 1970 11/85 5-15 Point West Apts. 205 2,771 2,976 2,108 1973 11/85 5-40 Totals $12,491 $118,162 $130,653 $98,490
Reconciliation of "Investment Properties and Accumulated Depreciation" (in thousands): For the Years Ended December 31, 1997 1996 1995 Investment Properties Balance at beginning of year $ 128,128 $ 125,218 $ 122,218 Additions 2,559 4,945 3,325 Dispositions through foreclosures -- (1,605) -- Property disposals (34) (430) ( 325) Balance at End of Year $ 130,653 $ 128,128 $ 125,218 Accumulated Depreciation Balance at beginning of year $ 91,934 $ 86,294 $ 79,720 Depreciation of real estate 6,558 7,048 6,667 Accumulated depreciation on real estate foreclosed -- (1,079) -- Accumulated depreciation on property disposals (2) (329) (93) Balance at end of year $ 98,490 $ 91,934 $ 86,294 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1997 and 1996, is approximately $148,650,000 and $146,091,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 and 1996, is approximately $111,953,000 and $106,311,000, respectively. NOTE J - CASUALTY LOSSES During 1997, several storms caused damage to the Foothill Place Apartments. In addition, minor fire damage occurred at the Foothill Place Apartments and the Arbours of Hermitage Apartments. The insurance proceeds received less the cost of repairs plus the write-off of assets that were replaced as a result of these casualties resulted in a net casualty loss for these events of $46,000, which is included in operating expenses for the year ended December 31, 1997. NOTE K - PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the consolidated financial statements and federal taxable income allocated to the partners in the Partnership's information return for the years ended December 31, 1997 and 1996 (in thousands, except per unit data): 1997 1996 1995 Net income (loss) as reported $ 367 $ 2,036 $(1,197) Add (deduct): Deferred revenue and other liabilities 359 (166) 275 Depreciation differences 917 978 988 Accrued expenses 7 94 (68) Other 15 (1) (37) Gain (loss) on disposition/foreclosure 32 (1,542) 111 Federal taxable income $ 1,697 $ 1,399 $ 72 Federal taxable income per limited partnership unit $ 4.75 $ 3.92 $ .20 The tax basis of the Partnership's assets and liabilities is approximately $29,000,000 greater than the assets and liabilities as reported in the financial statements at December 31, 1997. NOTE L - LEGAL PROCEEDINGS In September 1997 the Partnership, along with the General Partner, Insignia and certain Insignia affiliates, was named as a defendant in two separate actions regarding alleged mismanagement of the Partnership and coercion of the limited partners into selling their units pursuant to the tender offers for substantially lower prices than the units are worth. The General Partner believes that these allegations are without merit and has been informed that the plaintiffs in each of these actions intend to discontinue the actions. NOTE M - SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER OF THE REGISTRANT The Partnership has no officers or directors. The General Partner manages and controls the Partnership and has general responsibility and authority in all matters affecting its business. The names of the directors and executive officers of ConCap Equities, Inc. ("CEI"), the Partnership's General Partner, their ages and the nature of all positions with CEI presently held by them are set forth below. Name Age Position William H. Jarrard, Jr. 51 President/Director Ronald Uretta 41 Vice President/ Treasurer Martha L. Long 38 Controller Robert D. Long 30 Vice President Daniel M. LeBey 32 Vice President/ Secretary Kelley M. Buechler 40 Assistant Secretary William H. Jarrard, Jr. has been President and Director of the General Partner since December 1996. He has acted as Senior Vice President of Insignia Properties Trust ("IPT"), parent of the General Partner, since May 1997. Mr. Jarrard previously acted as Managing Director - Partnership Administration of Insignia from January 1991 through September 1997 and served as Managing Director - Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Vice President and Treasurer of the General Partner since December 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Chief Operating Officer. He has also served as Secretary from January 1992 to June 1996 and as Insignia's Chief Financial Officer from January 1992 to August 1996. Martha L. Long has been Controller of the General Partner 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, in Greenville, SC. Robert D. Long, Jr. has been Vice President of the General Partner since January 2, 1998. Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice President and Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was an auditor for the State of Tennessee and was associated with the accounting firm of Harsman Lewis and Associates. Daniel M. LeBey has been Vice President and Secretary of the General Partner since January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has also served as Insignia's Associate General Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP, Atlanta, Georgia. Kelley M. Buechler has been Assistant Secretary of the General Partner since June 1996 and Assistant Secretary of Insignia since 1991. Market Ventures, L.L.C. ("Ventures"), Liquidity Assistance, L.L.C. ("Liquidity") and Insignia CCP IV Acquisition L.L.C. ("Acquisition") delinquently reported 31 transactions (17, 5 and 9 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, Liquidity and Acquisition, through which they may be deemed to be beneficial owners of the securities owned by such entities. ITEM 11. EXECUTIVE COMPENSATION No direct compensation was paid or payable by the Partnership to directors or officers for the years ended December 31, 1997 or 1996, nor was any direct compensation paid or payable by the Partnership to directors or officers of the General Partner for the years ended December 31, 1997 or 1996. The Partnership has no plans to pay any such remuneration to any directors or officers of the General Partner in the future. See "Item 13. Certain Relationships and Related Transactions" for amounts of compensation and reimbursement of salaries paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of December 31, 1997, no person or group was known to CEI to own of record or beneficially own more than five percent of the Units of the Partnership: Number of Percent Group and Address Units Of Total Insignia Properties, L.P. 95,817 27.95% One Insignia Financial Plaza Greenville, SC 29602 Insignia Properties, L.P. is an affiliate of Insignia. As of December 31, 1997, no other person was known to CEI to own of record or beneficially own more than 5 percent (5%) of the Units of the Partnership. (b) Beneficial Owners of Management Except as provided below, neither CEI nor any of the directors or 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 March 1998, 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 Insignia Properties Trust 100,000 100% One Insignia Financial Plaza Greenville, SC 29602 Insignia Properties Trust is an affiliate of Insignia. (See "Item 1") On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Current Management and Others Except for the transactions described below, neither CEI nor any of its directors, officers or associates, or any associates of any of them, has had any interest in any other transaction to which the Partnership is a party. The Partnership has no employees and is dependent on the General Partner and affiliates of Insignia for the management and administration of all of the partnership activities, as provided in the Partnership Agreement. The following transactions with the General Partner and affiliates of Insignia were charged to expense in 1997, 1996 and 1995: 1997 1996 1995 (in thousands) Property management fees (included in operating expenses) $ 1,413 $ 1,316 $ 1,223 Reimbursements for services of affiliates, including $65,000, $32,000 and $11,000 in construction services reimbursements in 1997, 1996 and 1995, respectively (included in investment property and general and administrative and operating expenses) 608 605 645 The Partnership has paid the property management fees noted above based on collected gross rental revenues for property management services in each of the years ended December 31, 1997, 1996 and 1995, respectively. On February 15, 1995, an affiliate of Insignia assumed day-to-day property management responsibilities for Lake Forest and Post Ridge Apartments. On February 7, 1996, the Metro Centre Office Building was foreclosed upon by the lender and affiliates of Insignia ceased to manage the property. On March 25, 1997, an affiliate of Insignia assumed day-to-day property management responsibilities for South Port Apartments. The Limited Partnership Agreement ("Partnership Agreement") provides for a special management fee equal to 9% of the total distributions made to the limited partners from cash flow provided by operations to be paid to the General Partner for executive and administrative management services. The Partnership paid approximately $138,000, $392,000 and $80,000 under this provision of the Partnership Agreement to affiliates of the General Partner for the years ended December 31, 1997, 1996, and 1995 respectively. These fees are included in general and administrative expenses. During the year ended December 31, 1995, the Partnership incurred approximately $42,000 of expense reimbursements to an affiliate of the General Partner related to evaluating the feasibility of refinancing the debt on several of the Partnership's investment properties. The Partnership has also paid this affiliate approximately $13,000, $22,000 and $123,000 in 1997, 1996 and 1995, respectively, for loan costs which were capitalized and included in "Other assets" on the Consolidated Balance Sheets. These loan costs related to the refinancing of one of the Partnership's properties in 1997, two in 1996 and eight properties in 1995 (See "Note C"). For the period January 1, 1996, to August 31, 1997, the Partnership insured 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 master policy. The agent assumed the financial obligations to the affiliate of the General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. On January 20, 1995, an affiliate of the General Partner, Insignia CCP IV Acquisition, L.L.C., closed an offer to purchase Units (the "Tender Offer") for a cash price of $60.00 per Unit to Limited Partners of record as of December 15, 1994. Approximately 3,370 Limited Partners holding 64,343 Units (18.77% of total Units) accepted the Tender Offer and sold their Units to Insignia CCP IV Acquisition, L.L.C. effective January 20, 1995, for an aggregate sales price of approximately $3,900,000. On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender offers for limited partnership interests in six real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 85,000 of the outstanding units of limited partnership interest in the Partnership, at $140.00 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on August 28, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, including as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interest in the Partnership may not always be consistent with the best interests of the other limited partners. On October 6, 1997, the Insignia affiliate closed the tender offer and acquired 29,618 units of limited partnership interest (8.64% of total Units). 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 - December 31, 1997 and 1996 Consolidated Statements of Changes in Operations - Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Partners' Deficit - Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. Schedules All schedules are omitted because either 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 NUMBER DOCUMENT DESCRIPTION 3 Certificate of Limited Partnership, as amended to date. 10.1 Property Management Agreement No. 105 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by refer- ence to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.2 Property Management Agreement No. 106 dated October 23, 1990, by and between the LeTourneau Associates, Ltd. and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.3 Property Management Agreement No. 107 dated October 23, 1990, by and between Overlook Associates, Ltd. and CCEC (Incor- porated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.4 Property Management Agreement No. 108 dated October 23, 1990, by and between Park 77 Associates, Ltd. and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.5 Property Management Agreement No. 205 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by refer- ence to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.6 Property Management Agreement No. 306 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by refer- ence to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.7 Property Management Agreement No. 307 dated October 23, 1990, by and between Point West Associates, Ltd. and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.8 Property Management Agreement No. 403 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quar- terly Report on Form 10-Q for the quarter ended September 30, 1990). 10.9 Property Management Agreement No. 404 dated October 23, 1990, by and between Denbigh Village Associates, Ltd. and CCEC (Incorporated by refer- ence to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.10 Property Management Agreement No. 405 dated October 23, 1990, by and between Stratford Place Associates, Ltd. and CCEC (Incorporated by refer- ence to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.11 Bill of Sale and Assignment dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Quar- terly Report on Form 10-Q for the quarter ended September 30, 1990). 10.12 Assignment and Assumption Agreement dated October 23, 1990, by and between CCEC and ConCap Management Limited Partnership ("CCMLP") (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.13 Assignment and Assumption Agreement as to Certain Property Management Services dated October 23, 1990, by and between CCMLP and ConCap Capital Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.14 Assignment and Assumption Agreement dated October 23, 1990, by and between CCMLP and The Hayman Company (100 Series of Property Management Contracts) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.15 Assignment and Assumption Agreement dated October 23, 1990, by and between CCMLP and Horn-Barlow Companies (200 Series of Property Management Contracts) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.16 Assignment and Assumption Agreement dated October 23, 1990, by and between CCMLP and Metro ConCap, Inc. (300 Series of Property Management Contracts) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.17 Assignment and Assumption Agreement dated October 23, 1990, by and between CCMLP and R&B Realty Group (400 Series of Property Manage- ment Contracts) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.18 Assignment and Assumption Agreement dated February 21, 1991, by and between the Partnership and Greenbriar Apartments Associates Limited Partnership (Property Management Agreement No. 403). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.19 Assignment and Assumption Agreement dated April 1, 1991, by and between the Partnership and ConCap Village East Apartments Associates, L.P. (Property Management Agreement No. 205). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.20 Assignment and Assumption Agreement dated April 1, 1991, by and between the Partnership and Nob Hill Villa Apartments Associates, L.P. (Property Management Agreement No. 306). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.21 Assignment and Assumption Agreement dated April 1, 1991, by and between the Partnership and Barnett Regency Tower Associates Limited Partnership (Property Management Agreement No. 105). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.22 Assignment and Assumption of Property Management Agreement dated August 1, 1991, by and between R & B Realty Group and R & B Apartment Management Company, Inc. (Property Management Agreement with Denbigh Village Associates, Ltd.) (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.23 Assignment and Assumption of Property Management Agreement dated August 1, 1991, by and between R & B Realty Group and R & B Apartment Management Company, Inc. (Property Management Agreement with Greenbriar Apart- ments Associates Limited Partnership). (Incor- porated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.24 Assignment and Assumption of Property Manage- ment Agreement dated August 1, 1991, by and between R & B Realty Group and R & B Apart- ment Management Company, Inc. (Property Management Agreement with the Partnership concerning Briar Bay Racquet Club). (Incorpora- ted by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.25 Assignment and Assumption of Property Manage- ment Agreement dated August 1, 1991, by and between R & B Realty Group and R & B Apartment Management Company, Inc. (Property Management Agreement with Stratford Place Associates, Ltd.). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.26 Assignment and Assumption Agreement dated September 1, 1991, by and between the Partnership and CCP IV Associates, Ltd. (Property Management Agreement No. 306). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.27 Assignment and Assumption Agreement dated September 1, 1991, by and between the Partnership and CCP IV Associates, Ltd. (Property Management Agreement No. 205). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.28 Assignment and Assumption Agreement dated September 1, 1991, by and between ConCap Village East Apartments Associates, L.P. and CCP IV Associates, Ltd. (Property Management Agreement No. 205). (Incor- porated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.29 Assignment and Assumption Agreement dated September 15, 1991, by and between the Partnership and Foothill Chimney Associates Limited Partnership (Property Management Agreement No. 105). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.30 Assignment and Assumption Agreement dated September 15, 1991, by and between the Partner- ship and Foothill Chimney Associates Limited Partnership (Property Management Agreement No. 205). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.31 Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and Horn-Barlow Companies (the "Horn-Barlow Construction Management Agree- ment"). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.33 Assignment and Assumption Agreement dated September 15, 1991, by and between the Partnership and Foothill Chimney Associates Limited Partnership (Horn-Barlow Construction Management Agreement Concerning Chimney Hill Apartments). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.34 Assignment and Assumption Agreement dated September 1, 1991, by and between ConCap Village East Apartments Associates, L.P. and CCP IV Associates, Ltd. (Village East Construc- tion Agreement). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.35 Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and Metro ConCap, Inc. (the "Metro Construction Management Agreement"). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.36 Assignment and Assumption Agreement dated September 1, 1991, by and between the Partnership and CCP IV Associates, Ltd. (Metro Construction Management Agreement concerning Arbour East and Knollwood apartments). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.37 Construction Management Cost Reimburse- ment Agreement dated January 1, 1991, by and between the Partnership and The Hayman Company (the "Hayman Construction Manage- ment Agreement"). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.38 Assignment and Assumption Agreement dated September 15, 1991, by and between the Partnership and Foothill Chimney Associates Limited Partnership (Hayman Construction Management Agreement concerning Chimney Hill Apartments). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.39 Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and R & B Apartment Management Company, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.40 Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between ConCap Metro Centre Associates, L.P. and R & B Commercial Management Company, Inc. (Incor- porated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.41 Investor Services Agreement dated October 23, 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). (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.42 Assignment and Assumption Agreement (Investor Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1990). 10.43 Letter of Notice dated December 20, 1991, from Partnership Services, Inc. ("PSI") to the Partnership regarding the change in ownership and dissolution of ConCap Services Company whereby PSI assumed the Investor Services Agreement. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.44 Financial Services Agreement dated October 23, 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). 10.45 Assignment and Assumption Agreement (Financial Service 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). 10.46 Letter of Notice dated December 20, 1991, from PSI to the Partnership regarding the change in ownership and dissolution of ConCap Capital Company whereby PSI (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.47 Property Management Agreement No. 419 dated May 13, 1993, by and between the Partnership and Coventry Properties, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.48 Assignment and Assumption Agreement (Property Management Agreement No. 419) dated May 13, 1993, by and between Coventry Properties, Inc., R&B Apartment Management Company, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.49 Assignment and Agreement as to Certain Property Management Services dated May 13, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.50 Property Management Agreement No. 419A dated October 11, 1993, by and between ConCap Stratford Associates, Ltd. and Coventry Properties, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.51 Assignment and Assumption Agreement (Property Management Agreement No. 491A) dated October 11, 1993, by and between Coventry Properties, Inc., R&B Apartment Management Company, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.52 Assignment and Agreement as to Certain Property Management Services dated October 11, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.53 Property Management Agreement No. 427A dated October 11, 1993, by and between ConCap River's Edge Associates, Ltd. and Coventry Properties, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.54 Assignment and Assumption Agreement (Property Management Agreement No. 427A) dated October 11, 1993, by and between Coventry Properties, Inc., R&B Apartment Management Company, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.55 Assignment and Agreement as to Certain Property Management Services dated October 11, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.56 Property Management Agreement No. 513A dated August 18, 1993, by and between ConCap Citadel Associates, Ltd. and Coventry Properties, Inc. 10.57 Assignment and Agreement as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.58 Property Management Agreement No. 514 dated June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.59 Assignment and Agreement as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.60 Stock and Asset Purchase Agreement, dated December 8, 1994 (the "Gordon Agreement"), among MAE-ICC, Inc. ("MAE-ICC"), Gordon Realty Inc. ("Gordon"), GII Realty, Inc. ("GII Realty"), and certain other parties. (Incorporated by reference to form 8-K dated December 8, 1994) 10.61 Exercise of the Option (as defined in the Gordon Agreement), dated December 8, 1994, between MAE-ICC and Gordon. (Incorporated by reference to Form 8-K dated December 8, 1994) 10.62 Contracts related to refinancing of debt (a) Deed of Trust and Security Agreement dated March 27, 1995 between Nob Hill Villa Apartment Associates, L.P., a Tennessee limited partnership, and First Union National Bank of North Carolina, a North Carolina Corporation. (b) Promissory Note dated March 27, 1995 between Nob Hill Villa Apartments Associates, L.P., a Tennessee limited partnership, and First Union National Bank of North Carolina, a North Carolina corporation. (c) Assignment of leases and Rents dated March 27, 1995 between Nob Hill Villa Apartments Associates, L.P., a Tennessee limited partnership, and First Union National Bank of North Carolina, a North Carolina Corporation. 10.63 Multifamily Note dated November 30, 1995 between Briar Bay Apartments Associates, LTD., a Texas limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.64 Multifamily Note dated November 30, 1995 between CCP IV Associates, LTD., a Texas limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.65 Multifamily Note dated November 30, 1995 between CCP IV Associates, LTD., a Texas limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.66 Multifamily Note dated November 30, 1995 between CCP IV Associates, LTD., a Texas limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.67 Multifamily Note dated November 30, 1995 between CCP IV Associates, LTD., a Texas limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.68 Multifamily Note dated November 30, 1995 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.69 Multifamily Note dated November 30, 1995 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.70 Multifamily note dated September 30, 1996, between Post Ridge Associates, Ltd., Limited Partnership, a Tennessee Limited Partnership and Lehman Brothers Holdings, Inc. d/b/a Lehman Capitol, a division of Lehman BrothersHoldings, Inc. 10.71 Exercise of the remaining portion of the option (as defined in the Gordon Agreement), dated December 8, 1994 between MAE-ICC and Gordon. (Incorporated by reference to Form 8-K dated October 24, 1995). 10.72 Multifamily note dated November 1, 1996, between Post Ridge Associates, Ltd., Limited Partnership, a TennesseeLimited Partnership and Lehman Brothers Holdings, Inc. d/b/a Lehman Capitol, a division of Lehman Brothers Holdings, Inc. 10.73 Amended and Restated Multifamily note dated November 1, 1996, between Post Ridge Associates, Ltd., Limited Partnership , a Tennessee Limited Partnership and LehmanBrothers Holding, Inc. d/b/a Lehman Capitol, a division of Lehman Brothers Holdings, Inc. 10.74 Multifamily note dated November 1, 1996, between Consolidated Capital Properties IV, a California Limited Partnership and Lehman Brothers Holdings, Inc. d/b/a Lehman Capitol, a division of Lehman Brothers Holdings, Inc. 10.75 Mortgage and Security Agreement dated November 18, 1997, between Southport CCP IV, L.L.C., a South Carolina limited liability company and Lehman Brothers Holdings, Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings, Inc., a Delaware Corporation. 11 Statement regarding computation of Net Income per Limited Partnership Unit (Incorporated by reference to Note 1 of Item 8 - Financial Statements of this Form 10-K). 16.1 Letter, dated August 12, 1992, from Ernst & Young to the Securities and Exchange Commission regard- ing change in certifying accountant. (Incorporated by reference to Form 8-K dated August 6, 1992). 16.2 Letter dated May 9, 1995 from the Registrant's former independent accountant regarding its concurrence with the statements made by the Registrant regarding a changein the certifying accountant. (Incorporated by referenceto Form 8-K dated May 3, 1995) 19.1 Chapter 11 Plan of CCP/IV Associates, Ltd. (Restated to incorporate first amended Chapter 11 Plan filed October 27, 1992 and second amend- ments to Chapter 11 Plan of CCP/IV Associates, Ltd. filed December 14, 1992) dated December 14, 1992, and filed December 14, 1992, in the United States Bankruptcy Court for the Middle District of Tennessee. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992). 19.2 First amended disclosure statement to accompany Chapter 11 Plan, dated February 21, 1992, and amended October 27, 1992 filed by CCP/IV Associates, Ltd. filed October 27, 1992, in the United States Bankruptcy Court for the Middle District of Tennessee. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992). 27 Financial Data Schedule (b) Reports on Form 8-K filed during the fourth quarter of 1997: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL PROPERTIES IV By: CONCAP EQUITIES, INC. General Partner By: /s/William H. Jarrard, Jr. William H. Jarrard, Jr. President By: /s/Ronald Uretta Ronald Uretta Vice President/Treasurer Date: March 23, 1998 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/William H. Jarrard, Jr. President William H. Jarrard, Jr. /s/Ronald Uretta Vice President/Treasurer Ronald Uretta EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Properties IV 1997 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000355804 CONSOLIDATED CAPITAL PROPERTIES IV 1,000 12-MOS DEC-31-1997 DEC-31-1997 12,090 0 1,999 0 0 0 130,653 98,490 52,381 0 72,439 0 0 0 (23,378) 52,381 0 29,084 0 0 28,670 0 5,868 0 0 414 0 (47) 0 367 1.03 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-10.75 3 PROMISSORY NOTE $4,500,000.00 New York, New York As of November 3, 1997 FOR VALUE RECEIVED SOUTH PORT CCPIV, L.L.C., a South Carolina limited liability company, having an address at c/o Insignia Financial Group, One Insignia Financial Plaza, Greenville, South Carolina 29602 (hereinafter referred to as "Borrower"), promises to pay to the order of LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, having an address at Three World Financial Center, 200 Vesey Street, New York, New York 10285 (hereinafter referred to as "Lender"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of FOUR MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($4,500,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (hereinafter defined), and to be paid as hereinafter provided. A. PAYMENT TERMS Borrower shall pay to Lender: (i) a payment of interest only on December 1, 1997; (ii) a constant payment of $30,515.01 (the "Monthly Payment") on January 1, 1998 and on the first day of each calendar month (the "Monthly Payment Date") thereafter to and including the first day of November, 2004, and (iii)the balance of the principal sum then outstanding and all interest thereon shall be due and payable on the first day of December, 2004 (the "Maturity Date"). Each of such payments shall be applied as follows: (i) First to the payment of interest computed at the Applicable Interest Rate; and (ii) The balance applied toward the reduction of the principal sum. B. INTEREST The term "Applicable Interest Rate" as used in this Note shall mean 7.19% per annum. Interest on the principal sum of this Note shall be calculated in arrears on the basis of a three hundred sixty (360) day year consisting of twelve (12) months of thirty (30) days each. C. DEFAULT AND ACCELERATION The whole of the principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Security Instrument (hereinafter defined) and this Note (all such sums hereinafter collectively referred to as the "Debt") shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid within ten (10) days after written notice from the Lender notifying Borrower that the same is due or on the happening of any other default, after the expiration of any applicable notice and grace periods, herein or under the terms of the Security Instrument (hereinafter collectively an "Event of Default"). All of the terms, covenants and conditions contained in the Security Instrument and the Other Security Documents (hereinafter defined) are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event that it should become necessary to employ counsel to collect the Debt or to protect, sell or foreclose the security hereof, Borrower also agrees to pay reasonable attorney's fees for the services of such counsel whether or not suit be brought. D. PREPAYMENT Borrower shall not have the right or privilege to prepay all or any portion of the unpaid principal balance of this Note until November 31, 2000. Beginning December 1, 2000, provided no Event of Default exists, the principal balance of this Note may be prepaid, in whole but not in part, upon: (i) not less than 30 days and not more than 45 days prior written notice (the "Prepayment Notice") to Lender specifying the scheduled payment date on which prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued and unpaid interest on the outstanding principal balance of this Note to and including the Prepayment Date together with a payment of all interest which would have accrued on the principal balance of this Note to and including the first day of the calendar month immediately following the Prepayment Date, if such prepayment occurs on a date which is not the first day of a calendar month (the "Shortfall Interest Payment"); (iii) payment of all other sums then due under this Note, the Security Instrument and the Other Security Documents and (iv) if the Prepayment Date occurs prior to the date which is six months prior to the Maturity Date payment of a prepayment consideration (the "Prepayment Consideration") in an amount equal to the greater of: (A) one (1%) percent of the principal amount of this Note being prepaid; and (B) the present value of a series of payments each equal to the Payment Differential (hereinafter defined) and payable on each monthly payment date over the remaining original term of this Note and on the Maturity Date discounted at the Reinvestment Yield (hereinafter defined) for the number of months remaining from the Prepayment Date to each such monthly payment date and the Maturity Date. The term "Reinvestment Yield" as used herein shall be equal to the lesser of (a) the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the Debt, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is 14 days prior to the Prepayment Date set forth in the Prepayment Notice (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. The term "Payment Differential" as used herein shall be equal to (x) the Applicable Interest Rate minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the principal sum outstanding on such Prepayment Date after application of the Constant Monthly Payment (if any) due on such Prepayment Date, provided that the Payment Differential shall in no event be less than zero. In no event, however, shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury obligations or otherwise. Lender shall notify Borrower of the amount, and the basis of determination, of the required Prepayment Consideration. If a Prepayment Notice is given by Borrower to Lender pursuant to this Article D, the principal balance of this Note and the other sums required under this Article D shall be due and payable on the Prepayment Date. Lender shall not be obligated to accept any prepayment of the principal balance of this Note unless it is accompanied by all sums due in connection therewith. Notwithstanding anything contained herein to the contrary, provided no Event of Default exists, no Prepayment Consideration shall be due in connection with a complete or partial prepayment resulting from the application of insurance proceeds or condemnation awards pursuant to paragraphs 3 and 6 of the Security Instrument. In the event of any permitted partial prepayment of the principal balance of this Note, the amount of principal prepaid (but not including any Prepayment Consideration or interest) shall be applied to the principal last due under this Note and shall not release Borrower from the obligation to pay the Constant Monthly Payments next becoming due under this Note and the Constant Monthly Payment shall not be adjusted or recalculated as a result of such partial prepayment. If a Default Prepayment (defined herein) occurs prior to the date which is six months prior to the Maturity Date, Borrower shall pay to Lender the entire Debt, including, without limitation, the Prepayment Consideration. For purposes of this Note, the term "Default Prepayment" shall mean a prepayment of the principal amount of this Note made during the continuance of any Event of Default or after an acceleration of the Maturity Date under any circumstances, including, without limitation, a prepayment occurring in connection with reinstatement of the Security Instrument provided by statute under foreclosure proceedings or exercise of a power of sale, any statutory right of redemption exercised by Borrower or any other party having a statutory right to redeem or prevent foreclosure, any sale in foreclosure or under exercise of a power of sale or otherwise. Notwithstanding any provision of this Article D to the contrary, Lender may require Borrower, in lieu of a prepayment as contemplated in the first paragraph of this Article D, to deliver to Lender the Defeasance Collateral (hereinafter defined) in the manner contemplated herein. After Lender's receipt of the Prepayment Notice, Lender shall, if it so elects, advise Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be required, in which event Borrower shall be entitled to a release of the Property (hereinafter defined) from the lien of the Security Instrument and the Other Security Documents upon satisfaction of the following: I. Lender shall have received written confirmation from the rating agencies that have rated the REMIC "real estate mortgage investment conduit" (defined in Section 860D of the Internal Revenue Code of 1986, as amended from time to time or any successor statute (the "Code")) ("REMIC") related to the Securities (as defined in the Security Instrument) that such substitution of Defeasance Collateral will not result in a downgrade, withdrawal or qualification of the ratings then assigned to any of the Securities; provided, however, that in the event that Lender or its agent is unable to obtain such confirmation, the Lender or its agent shall so advise Borrower and Borrower will then be subject to the other provisions of this Article D set forth above; II. all accrued and unpaid interest and all other sums due under this Note, the Security Instrument and other Security Documents up to the date of the delivery of the Defeasance Collateral (the "Release Date"), including, without limitation, all costs and expenses incurred by Lender or its agents in connection with such release (including, without limitation, the review of the proposed Defeasance Collateral and the preparation of the Defeasance Security Agreement (as hereinafter defined) and the related documentation), shall be fully paid on or before the Release Date; and III. Borrower shall have delivered to Lender on or before the Release Date: (a) a pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion, creating a first priority security interest in favor of Lender in the Defeasance Collateral (the "Defeasance Security Agreement"), which shall provide, among other things, that any excess received by Lender from the Defeasance Collateral over the amount payable by Borrower hereunder shall be refunded to Borrower promptly following each Monthly Payment Date and the Maturity Date; (b) direct, non-callable obligations of the United States of America (the "US Obligations") that provide for payments prior, but as close as possible, to all successive Monthly Payment Dates occurring after the Release Date and the Maturity Date, with each such payment being equal to or greater than the amount of the corresponding Constant Monthly Payment required to be paid under this Note for the balance of the term hereof and the amount required to be paid on the Maturity Date (the "Defeasance Collateral"), each of which shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance wholly satisfactory to Lender (including, without limitation, such instrument as may be required by the depository institution holding such securities or the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Security Agreement the first priority security interest therein in favor of the Lender in conformity with all applicable state and federal laws governing the granting of such security interests, provided, however, that the price of the Defeasance Collateral shall not exceed all sums that would otherwise be due in connection with a prepayment of the principal balance of this Note under the first paragraph of this Article D; Borrower shall authorize and direct that the payments received from the U.S. Obligations shall be made directly to Lender or Lender's designee and applied to satisfy the Obligations of Borrower under this Note; (c) evidence reasonably satisfactory to Lender that title to the Release Property has been transferred to an entity other than Borrower; (d) Lender shall have received an opinion of Borrower's counsel, dated as of the Release Date, in form reasonably satisfactory to Lender stating, among other things, that (A) the Defeasance Collateral and the U.S. Obligations have been duly and validly assigned and delivered to Lender and Lender has a valid, perfected, first priority lien and security interest in the Defeasance Collateral delivered by Borrower, (B) the Defeasance Collateral has been validly assigned to the REMIC, (C) the Defeasance has been effected in accordance with the requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such regulation may be amended or substituted from time to time) and will not be treated as an exchange pursuant to Section 1001 of the Code and (D) the tax qualification and status of the REMIC will not be adversely affected or impaired as a result of the Defeasance; (e) a certificate by Borrower's independent public accountant certifying that all of the requirements set forth in Clause I and II above and this Clause III have been fully satisfied; (f) such other certificates, documents or instruments as Lender may reasonably require; and (g) Notwithstanding the foregoing, no such Release shall be made, given or be deemed effective under this Article D until the first day after expiration of the period during which the delivery to Lender of the Defeasance Collateral in connection therewith is subject to avoidance and recovery as a preferential transfer under 11 U.S.C. ' 547 in the event of a bankruptcy of the delivering person or entity without such avoidance and recovery (which day shall be identified in writing by Borrower at any time that Borrower delivers the Defeasance Collateral to Lender), unless Lender receives, at the time of such delivery, an opinion of counsel to the effect that such delivery of the Defeasance Collateral would not be avoided and recovered as a preferential transfer under 11 U.S.C. '547 in the event of the filing of a bankruptcy petition in respect of the conveying or delivering person or entity. Upon compliance with the foregoing requirements relating to the delivery of the Defeasance Collateral, the Property shall be released from the lien of the Security Instrument and the Other Security Documents and the Defeasance Collateral shall constitute collateral which shall secure this Note and the Debt. Lender will, at Borrower's expenses, execute and deliver any agreements reasonably requested by Borrower to release the lien of the Security Instrument from the Property. Upon the release by the Lender in accordance with this Article D, Borrower shall have no further right to prepay this Note pursuant to the other provisions of this Article D or otherwise. E. DEFAULT INTEREST Borrower does hereby agree that upon the occurrence of an Event of Default or upon the failure of Borrower to pay the Debt in full on the Maturity Date, Lender shall be entitled to receive and Borrower shall pay interest ("Default Interest") on the entire unpaid principal sum at the rate of (i) the greater of (a) two percent (2%) over the Prime Rate (hereinafter defined), as such Prime Rate shall change from time to time or (b) five percent (5%) over the Applicable Interest Rate then in effect or (ii) the maximum rate of interest which Borrower may by law pay, whichever is lower, to be computed from the occurrence of the Event of Default until the actual receipt and collection of the Debt (the "Default Interest Rate"). This charge shall be added to the Debt, and shall be deemed secured by the Security Instrument. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default. The term "Prime Rate" as used in this Note shall mean the daily "prime rate" published in The Wall Street Journal from the date of the Event of Default, as such "prime rate" shall change from time to time. In the event The Wall Street Journal ceases to publish the "prime rate" then Lender shall select an equivalent publication which publishes such "prime rate"; and in the event such prime rates are no longer generally published or are limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index. F. SECURITY This Note is secured by the Security Instrument and the Other Security Documents. The term "Security Instrument" as used in this Note shall mean the Mortgage and Security Agreement dated as of the date hereof in the principal sum of $4,500,000.00 given by Borrower to Lender encumbering the fee estate of Borrower in certain premises located in Tulsa County, State of Oklahoma and other property, as more particularly described therein and intended to be duly recorded in said County. The term "Other Security Documents" as used in this Note shall mean all and any of the documents other than this Note or the Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of this Note. Whenever used, the singular number shall include the plural, the plural the singular, and the words "Lender" and "Borrower" shall include their respective successors, assigns, heirs, executors and administrators. G. SAVINGS CLAUSE This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the Applicable Interest Rate shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. H. LATE CHARGE If any sum payable under this Note is not received by Lender within five (5) days of the date on which it is due, without taking into account or including within said five (5) day period any applicable notice or grace period, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment and such amount shall be secured by the Security Instrument and the Other Security Documents. Nothing contained herein is intended to affect the rights of Lender in and to any Default Interest due to Lender pursuant to the provisions of paragraph E hereof entitled "Default Interest". I. MISCELLANEOUS This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. If Borrower consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. The foregoing sentence, however, is not intended to affect the limited liability of any limited partner or stockholder of Borrower afforded by applicable partnership or corporate law. Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest and non-payment. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument or the Other Security Documents made by agreement between Lender and any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other who may become liable for the payment of all or any part of the Debt, under this Note, the Security Instrument or the Other Security Documents. Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute and deliver this Note, the Security Instrument and the Other Security Documents and that this Note, the Security Instrument and the Other Security Documents constitute valid and binding obligations of Borrower. This Note shall be governed and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America. J. EXCULPATION Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note or the Security Instrument by any action or proceeding wherein a money judgment shall be sought against Borrower or any general or limited partner or member of Borrower (hereinafter collectively referred to as the "Exculpated Parties"), except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Note, the Security Instrument, the Other Security Documents, and the interest in the Property, the Rents (as defined in the Security Instrument) and any other collateral given to Lender created by this Note, the Security Instrument and the Other Security Documents; provided, however, that any judgment in any such action or proceeding shall be enforceable against the Exculpated Parties only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender. Lender, by accepting this Note and the Security Instrument, agrees that it shall not sue for, seek or demand any deficiency judgment against the Exculpated Parties in any such action or proceeding, under or by reason of or under or in connection with the Security Instrument, the Other Security Documents or this Note. The provisions of this paragraph shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by the Security Instrument, the Other Security Documents or this Note; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instrument; (iii) affect the validity or enforceability of any guaranty made in connection with the Security Instrument, this Note, or the Other Security Documents; (iv) impair the right of Lender to obtain the appointment of a receiver upon the occurrence and continuance of an Event of Default; (v) impair the enforcement of the Assignment of Leases and Rents dated the date hereof given by Borrower to Lender executed in connection herewith; (vi) impair the right of Lender to bring suit with respect to fraud or intentional misrepresentation by Borrower, the Exculpated Parties or any other person or entity in connection with the Security Instrument, this Note or the Other Security Documents; (vii) impair the right of Lender to obtain the Rents received by any of the Exculpated Parties after the occurrence and continuance of an Event of Default; (viii) impair the right of Lender to bring suit with respect to the Exculpated Parties' misappropriation of tenant security deposits or Rents collected in advance; (ix) impair the right of Lender to obtain insurance proceeds or condemnation awards due to Lender under the Security Instrument; (x) impair the right of Lender to enforce the provisions of sub- paragraphs 36(g) through 36(k), inclusive and paragraphs 34 and 35 of the Security Instrument against the Borrower (excluding the general and limited partners or members of Borrower); or (xi) impair the right of Lender to recover any part of the Debt from the Borrower (excluding the general and limited partners or members of Borrower) following the breach of any covenant contained in paragraphs 9 or 55 of the Security Instrument. THIS NOTE, AND THE OTHER SECURITY DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN LENDER, BORROWER AND THE OTHER RESPECTIVE PARTIES HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, Borrower has duly executed this Note under seal as of the day and year first above written. [BORROWER] SOUTH PORT CCPIV, L.L.C., a South Carolina limited liability company By: SOUTH PORT APARTMENTS, a California limited partnership, its sole member By: CONSOLIDATED CAPITAL PROPERTIES IV, a California limited partnership, its general partner By: CONCAP EQUITIES, INC., a Delaware corporation, its general partner By:/s/William H. Jarrard,Jr. Name: William H. Jarrard, Jr. Title: Vice President STATE OF South Carolina ) )SS: COUNTY OF Greenville ) This instrument was acknowledged before me on the 20th day of November, 1997, by William H. Jarrard, Jr., who is the Vice President of CONCAP EQUITIES, INC., a Delaware corporation, on behalf of said corporation, which corporation is the general partner of CONSOLIDATED CAPITAL PROPERTIES IV, a California limited partnership which limited partnership is the general partner of SOUTH PORT APARTMENTS, a California limited partnership which is the sole member and acknowledged this instrument on behalf of SOUTH PORT CCP IV, L.L.C., a South Carolina limited liability company. [SEAL] /s/Nancy A. Dixon Notary Public in and for the State of South Carolina My Commission Expires: Print name of Notary Public June 9, 1998 Nancy A. Dixon -----END PRIVACY-ENHANCED MESSAGE-----