10KSB 1 jcip.txt JCIP FORM 10-KSB--Annual or Transitional Report Under Section 13 or 15(d) FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 2001 [] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission file number 0-16010 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS (Name of small business issuer in its charter) California 94-3004963 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Depositary Receipt (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year: $1,216,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 2001. No market exists for the limited partnership interests of the Registrant and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business Johnstown/Consolidated Income Partners (the "Partnership" or "Registrant") was organized on January 9, 1986, as a limited partnership under the California Revised Limited Partnership Act. The Partnership is engaged in the business of operating and holding real estate properties for investment. On June 20, 1986, the Partnership commenced a public offering for the sale of $150,000,000 of units (the "Units"). The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof (hereinafter referred to as "Unitholders") to the economic benefits attributable to equity interests in the Partnership and to participate in certain allocations and distributions of the Partnership. The sale of Units closed on June 19, 1987, with 129,266 Units sold at $250 each, for gross proceeds of approximately $32,317,000 to the Partnership. By the end of fiscal year 1988, approximately 79% of the proceeds raised had been invested in four properties, five mortgage loans, and approximately $1,600,000 in guaranteed mortgage-backed securities ("MBS"). Of the remaining 21%, 11.8% was required for organizational and offering expenses and sales commissions and 9.2% was retained in Partnership reserves for working capital as required by the Partnership Agreement. The limited partner of the Partnership is Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"), an affiliate of the general partner (as hereinafter defined). The Corporate Limited Partner serves as depositary for the Units pursuant to a Depositary Agreement entered into with the Partnership. Since its initial offering, the Registrant has not received, nor are Unitholders required to make, additional capital contributions. As of December 31, 2001, the Partnership held and operated one residential property. (See "Item 2. Description of Property"). The general partner of the Partnership is ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI"). The General Partner and the Corporate Limited Partner shall together be called the "Partners". The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2017 unless terminated prior to such date. The business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's property. The number and quality of competitive properties, including those which may be managed by an affiliate of the General Partner in such market area, could have a material effect on the rental market for the apartments at the Partnership's property and the rents that may be charged for such apartments. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States, and competition for apartments is local. The Registrant has no employees. Partnership management and administrative services as well as property management services are provided by an affiliate of the General Partner. The General Partner has also selected affiliates to provide real estate advisory and asset management services to the Partnership. As advisor, such affiliates provided all partnership accounting and administrative services, investment management, and supervisory services over property management. Both the income and expenses of operating the property owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the property owned by the Partnership. The Partnership monitors its property for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Item 2. Description of Property The following table sets forth the property held by the Partnership.
Date of Property Purchase Type of Ownership Use Cedar Brooke Apartments 02/27/87 Fee ownership subject Apartment Independence, Missouri to first mortgage 158 units
Schedule of Property Set forth below for the Partnership's property is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation, and Federal tax basis:
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Cedar Brooke Apartments $4,986 $3,449 5-30 yrs S/L $2,199
See "Note A" to the financial statements in "Item 7. Financial Statements" for a description of the Partnership's depreciation policy. Schedule of Property Indebtedness The following table sets forth certain information relating to the loan encumbering the Partnership's investment property:
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2001 Rate Amortized Date Maturity (in thousands) (in thousands) Cedar Brooke Apartments 1st mortgage $3,839 7.44% 20 years 07/21 $ -- (1)
(1) The principal balance is due to mature on July 1, 2021, at which time the loan is scheduled to be fully amortized. On June 28, 2001, the Partnership refinanced the mortgage encumbering Cedar Brooke Apartments. The refinancing replaced indebtedness of approximately $2,312,000 with a new mortgage in the amount of $3,875,000. The new mortgage carries a stated interest rate of 7.44% as compared to 7.33% on the previous loan. Payments of principal and interest on the new mortgage loan are due monthly until the loan matures on July 1, 2021 at which time it will be fully amortized. The Partnership was required to establish a capital improvement reserve of approximately $28,000 to cover necessary repairs as stipulated in the loan agreement. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $35,000 due to the write-off of unamortized loan costs. Total capitalized loan costs for the new mortgage were approximately $142,000 at December 31, 2001. Schedule of Rental Rates and Occupancy Average annual rental rate and occupancy for 2001 and 2000 for the property: Average Annual Average Rental Rate Occupancy (per unit) Property 2001 2000 2001 2000 Cedar Brooke Apartments $7,335 $7,113 96% 98% As noted under "Item 1. Description of Business", the real estate industry is highly competitive. The Partnership's property is subject to competition from other similar properties in the area. The General Partner believes that the property is adequately insured and in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. The property is an apartment complex that leases units for lease terms of one year or less and no tenant leases 10% or more of the available rental space. Schedule of Real Estate Taxes and Rate Real estate taxes and rate in 2001 for the property are as follows: 2001 2001 Billing Rate (in thousands) Cedar Brooke Apartments $ 72 7.09% Capital Improvements During the year ended December 31, 2001, the Partnership completed approximately $190,000 of capital improvements at Cedar Brooke Apartments, consisting primarily of swimming pool upgrades and appliance and floor covering replacements. These improvements were funded from replacement reserves and operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be approximately $75,400, consisting of approximately $28,000 of repairs related to the 2001 refinancing (as discussed above) and an additional $300 per unit or $47,400. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants intend to oppose the motion and are scheduled to file their opposition brief on March 26, 2002. A hearing on the motion has been scheduled for April 29, 2002. The Court has set the matter for trial in January 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2001, no matters were submitted to a vote of the Unitholders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Units of Depository Receipt and Related Security Holder Matters No established public trading market for the Units exists nor is one expected to develop. As of December 31, 2001, there are 1,403 holders of record owning an aggregate of 128,810 Units of Depositary Receipt. Affiliates of the General Partner held 68,364 Units or 53.07% as of December 31, 2001. The following table sets forth the distributions made by the Partnership for the years ended December 31, 2000 and 2001. (see "Item 6. Management's Discussion and Analysis or Plan of Operation" for further details): Distributions Per Unit of Aggregate Depositary Receipt (in thousands) 1/1/00 - 12/31/00 $10,623 (1) $81.65 1/1/01 - 12/31/01 1,740 (2) 13.38 (1) Consists of approximately $2,885,000 ($22.17 per unit of depositary receipt) of cash from operations and approximately $7,738,000 ($59.48 per unit of depositary receipt) of sale proceeds from the sale of Florida #11 Mini Warehouse and Phoenix Business Campus during the fourth quarter of 1999. (2) Consists of approximately $395,000 ($3.04 per unit of depositary receipt) of cash from operations and approximately $1,345,000 ($10.34 per unit of depositary receipt) of proceeds from the refinancing of the mortgage at Cedar Brooke Apartments in June 2001. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of the debt maturity, refinancing, and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any additional distributions to its partners in the year 2002 or subsequent periods (See "Item 6" for further details). In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 68,364 units of depositary receipt in the Partnership representing 53.07% of the outstanding units at December 31, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of depositary receipt in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 53.07% of the outstanding units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO and its affiliates would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Partnership's net loss for the year ended December 31, 2001 was approximately $57,000 compared to net income of approximately $100,000 for the year ended December 31, 2000. The decrease in net income is due to a decrease in total revenues and an increase in total expenses. In addition, for the year ended December 31, 2000 net income was partially offset by the loss on sale of discontinued operations. The Partnership's two commercial properties, Florida #11 Mini Warehouse and Phoenix Business Campus, were sold during 1999. These were the only commercial properties owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of these properties, the results of the commercial segment have been shown as loss on sale of discontinued operations. The loss on sale of discontinued operations for the year ended December 31, 2000 was due to additional legal fees and other costs relating to the sales. Also contributing to the net loss for the year ended December 31, 2001 was the recognition of an extraordinary loss on early extinguishment of debt due to the refinancing of the mortgage at Cedar Brooke Apartments in June 2001 (as discussed in "Liquidity and Capital Resources"). The Partnership's loss from continuing operations was approximately $22,000 for the year ended December 31, 2001, as compared to income from continuing operations of approximately $171,000 for the year ended December 31, 2000. The decrease in income from continuing operations is due to a decrease in total revenues and an increase in total expenses. The decrease in total revenues is due to a decrease in other income. The decrease in other income is primarily due to a decrease in interest income, which decreased as a result of lower average cash balances in interest bearing accounts. Rental income remained relatively constant for the comparable periods, as an increase in the average rental rate was offset by a decrease in occupancy at the Partnership's investment property. The increase in total expenses is due to increases in operating, depreciation and interest expenses, partially offset by a decrease in general and administrative expenses. The increase in operating expenses is due to increases in insurance expense, as a result of higher premiums, management fees, and maintenance expense at the Partnership's investment property. Management fees increased due to the payment of additional fees in 2001 related to under billings in fees for both the residential and commercial properties owned by the Partnership during 2000 and 1999. Maintenance expense increased as a result of an increase in the amount of interior painting performed during 2001 and an increase in exterior improvements and pool costs. The increase in depreciation expense is due to property improvements and replacements placed into service during 2001 at the property. The increase in interest expense is a result of a larger loan balance due to the refinancing of the mortgage at Cedar Brooke Apartments (see below). Property tax expense remained relatively constant for the comparable periods. General and administrative expenses decreased primarily due to a decrease in professional fees associated with the management of the Partnership. Also included in general and administrative expenses at both December 31, 2001 and 2000 are management reimbursements to the General Partner allowed under the Partnership Agreement and asset management fees paid to the General Partner as allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property 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. Liquidity and Capital Resources At December 31, 2001, the Partnership had cash and cash equivalents of approximately $117,000, compared to approximately $165,000 at December 31, 2000. The decrease in cash and cash equivalents of approximately $48,000 is due to approximately $368,000 of cash used in financing activities and approximately $37,000 of cash used in investing activities, which was partially offset by approximately $357,000 of cash provided by operating activities. Cash used in financing activities consisted of the repayment of the existing mortgage at Cedar Brooke Apartments, distributions to partners, and to a lesser extent, loan costs paid related to the refinancing of the mortgage and payments of principal made on the mortgage encumbering Cedar Brooke Apartments, partially offset by proceeds received as a result of the refinancing of the mortgage at Cedar Brooke Apartments. Cash used in investing activities consisted of property improvements and replacements which was partially offset by net receipts from escrow accounts maintained by the mortgage lender. The registrant invests its working capital reserves in interest bearing accounts. Until October 17, 2000, the Partnership was required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures were made from this reserve, operating revenue was to be allocated to such reserves to the extent necessary to maintain the foregoing level. On September 16, 2000, the Partnership solicited the vote of limited partners to amend the Partnership Agreement to eliminate the requirement for the Partnership to maintain reserves equal to at least 5% of the limited partner's capital contributions less distributions to limited partners and instead permit the General Partner to determine reasonable reserve requirements of the Partnership. The vote was sought pursuant to a Consent Solicitation that expired on October 16, 2000 at which time the amendment was approved by the requisite percent of limited partnership interests. 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 investment property to adequately maintain the physical assets and other operating needs of the Partnership, and to comply with Federal, state and local, legal and regulatory requirements. The minimum amount to be budgeted is expected to be approximately $75,400, consisting of approximately $28,000 of repairs related to the 2001 refinancing (as discussed below) and an additional $300 per unit or $47,400. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The capital expenditures will be incurred only if cash is available from operations or from partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs, exclusive of capital improvements, of the Partnership. On June 28, 2001, the Partnership refinanced the mortgage encumbering Cedar Brooke Apartments. The refinancing replaced indebtedness of approximately $2,312,000 with a new mortgage in the amount of $3,875,000. The new mortgage carries a stated interest rate of 7.44% as compared to 7.33% on the previous loan. Payments of principal and interest on the new mortgage loan are due monthly until the loan matures on July 1, 2021 at which time it will be fully amortized. The Partnership was required to establish a capital improvement reserve of approximately $28,000 to cover necessary repairs as stipulated in the loan agreement. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $35,000 due to the write-off of unamortized loan costs. Total capitalized loan costs for the new mortgage were approximately $142,000 at December 31, 2001. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2017. Accordingly, prior to such date the Partnership will need to either sell its investment property or extend the term of the Partnership. If the Partnership is unable to extend its term, the ultimate sale price of the investment property may be adversely affected. During the year ended December 31, 2001, the General Partner declared and paid distributions of approximately $1,740,000 (approximately $1,723,000 to the limited partners or $13.38 per unit of depositary receipt) consisting of approximately $395,000 (approximately $391,000 to the limited partners or $3.04 per unit of depositary receipt) from operations and approximately $1,345,000 (approximately $1,332,000 to the limited partners or $10.34 per unit of depositary receipt) from proceeds from the refinancing of the mortgage at Cedar Brooke Apartments. During the year ended December 31, 2000, cash distributions of approximately $10,623,000 (approximately $10,517,000 to the limited partners or $81.65 per unit of depositary receipt) were paid to the Partners. These distributions consisted of sales proceeds from the sales of Phoenix Business Campus and Florida #11 Mini Warehouse of approximately $7,738,000 (approximately $7,661,000 to the limited partners or $59.48 per unit of depositary receipt) and approximately $2,885,000 (approximately $2,856,000 to the limited partners or $22.17 per unit of depositary receipt) from operations. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of the debt maturity, refinancing, and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit further distributions to its partners in the year 2002 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 68,364 units of depositary receipt in the Partnership representing 53.07% of the outstanding units at December 31, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of depositary receipt in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 53.07% of the outstanding units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO and its affiliates would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Item 7. Financial Statements JOHNSTOWN/CONSOLIDATED INCOME PARTNERS LIST OF FINANCIAL STATEMENTS Report of Ernst and Young, LLP, Independent Auditors Balance Sheet - December 31, 2001 Statements of Operations - Years ended December 31, 2001 and 2000 Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2001 and 2000 Statements of Cash Flows - Years ended December 31, 2001 and 2000 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors To the Partners Johnstown/Consolidated Income Partners We have audited the accompanying balance sheet of Johnstown/Consolidated Income Partners as of December 31, 2001, and the related statements of operations, changes in partners' (deficit) capital, and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Johnstown/Consolidated Income Partners at December 31, 2001, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 2002 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS BALANCE SHEET (in thousands, except unit data) December 31, 2001
Assets Cash and cash equivalents $ 117 Receivables and deposits 9 Restricted escrows 28 Other assets 141 Investment property (Notes E and F): Land $ 213 Buildings and related personal property 4,773 4,986 Less accumulated depreciation (3,449) 1,537 $ 1,832 Liabilities and Partners' Deficit Liabilities Accounts payable $ 6 Tenant security deposit liabilities 40 Other liabilities 81 Mortgage note payable (Note E) 3,839 Partners' Deficit General partner $ (268) Corporate limited partner on behalf of the Unitholders - (128,810 units issued and outstanding) (1,866) (2,134) $ 1,832 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF OPERATIONS (in thousands, except unit data)
Years Ended December 31, 2001 2000 Revenues: Rental income $ 1,108 $ 1,097 Other income 108 222 Total revenues 1,216 1,319 Expenses: Operating 505 459 General and administrative 163 206 Depreciation 256 231 Interest 246 185 Property taxes 68 67 Total expenses 1,238 1,148 (Loss) income from continuing operations (22) 171 Loss on sale of discontinued operations (Note G) -- (71) (Loss) income before extraordinary item (22) 100 Extraordinary loss on early extinguishment of debt (Note E) (35) -- Net (loss) income (Note H) $ (57) $ 100 Net (loss) income allocated to general partner (1%) $ (1) $ 1 Net (loss) income allocated to limited partners (99%) (56) 99 $ (57) $ 100 Per Unit of Depositary Receipt: (Loss) income from continuing operations $ (0.16) $ 1.32 Loss on sale of discontinued operations -- (.55) Extraordinary loss on early extinguishment of debt (0.27) -- Net (loss) income $ (0.43) $ .77 Distributions per Unit of Depositary Receipt $ 13.38 $ 81.65 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Unitholders Units of Units of Depositary General Depositary Receipt Partner Receipt Total (Note A) Original capital contributions 129,266 $ 1 $32,317 $32,318 Partners' (deficit) capital at December 31, 1999 128,810 $ (145) $10,331 $10,186 Distributions to partners -- (106) (10,517) (10,623) Net income for the year ended December 31, 2000 -- 1 99 100 Partners' deficit at December 31, 2000 128,810 (250) (87) (337) Distributions to partners -- (17) (1,723) (1,740) Net loss for the year ended December 31, 2001 -- (1) (56) (57) Partners' deficit at December 31, 2001 128,810 $ (268) $(1,866) $(2,134) See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2001 2000 Cash flows from operating activities: Net (loss) income $ (57) $ 100 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 256 231 Amortization of loan costs 13 14 Loss on sale of discontinued operations -- 71 Extraordinary loss on early extinguishment of debt 35 -- Change in accounts: Receivables and deposits 104 59 Other assets 26 5 Accounts payable (29) (95) Tenant security deposit liabilities 1 4 Accrued property taxes -- (67) Other liabilities 8 (58) Net cash provided by operating activities 357 264 Cash flows from investing activities: Property improvements and replacements (190) (97) Net receipts from restricted escrows 153 42 Net cash used in investing activities (37) (55) Cash flows from financing activities: Payments on mortgage note payable (49) -- Loan costs paid (142) -- Proceeds from mortgage note payable 3,875 -- Repayment of mortgage note payable (2,312) -- Distributions to partners (1,740) (10,623) Net cash used in financing activities (368) (10,623) Net decrease in cash and cash equivalents (48) (10,414) Cash and cash equivalents at beginning of period 165 10,579 Cash and cash equivalents at end of period $ 117 $ 165 Supplemental disclosure of cash flow information: Cash paid for interest $ 223 $ 170 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS NOTES TO FINANCIAL STATEMENTS December 31, 2001 Note A - Organization and Summary of Significant Accounting Policies Organization Johnstown/Consolidated Income Partners (the "Partnership" or "Registrant"), a California limited partnership, was formed on January 9, 1986, to operate and hold commercial and residential properties and to invest in mortgage loans and mortgage-backed securities. Consolidated Capital Equities Corporation ("CCEC"), the former general partner, and Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"), which serves as depositary of certain Units of Depositary Receipt ("Units"), contributed $1,000 and $100,000, respectively. The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof ("Unitholders") to the economic benefits attributable to equity interests in the Partnership and to participate in certain allocations and distributions of the Partnership. For this reason, partners' (deficit) capital is herein represented as an interest of the Unitholders. The general partner of the Partnership is ConCap Equities, Inc. ("CEI" or the "General Partner"), a Delaware corporation. Additionally, the General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2017 unless terminated prior to that date. As of December 31, 2001, the Partnership owns one residential property, which is located in Missouri. At the time of the Partnership's formation, CCEC was the sole general partner of the Partnership, and the Corporate Limited Partner was a wholly-owned subsidiary of CCEC. In 1988, Southmark Corporation ("Southmark") gained control of CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. As part of its reorganization plan, CEI acquired CCEC's general partner interest in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and acquired the stock of the Corporate Limited Partner, replacing CCEC as managing general partner in all 16 partnerships. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks. At certain times the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $114,000 at December 31, 2001 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the investment property and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19 years for additions after May 8, 1985 and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the alternative depreciation system is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Investment Property The Partnership's investment property consists of one apartment complex, which is stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", 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. For the years ended December 31, 2001 and 2000, no adjustments for impairment of value were recorded. See "Recent Accounting Pronouncements" below. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying 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 to maturity, approximates its carrying balance. Capital Improvement Reserve As a result of the refinancing of Cedar Brooke Apartments in 2001, the property deposited approximately $28,000 with the mortgage company to establish a capital reserve account designated for certain capital improvements. At December 31, 2001, the balance in this escrow is approximately $28,000. Leases The Partnership generally leases apartment units for one year or less. The Partnership recognizes income as earned on its residential leases. In addition, the General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Loan Costs Loan costs are approximately $142,000, net of accumulated amortization of approximately $6,000, at December 31, 2001, and are amortized over the life of the related mortgage note. Unamortized loan costs are included in other assets. Amortization of loan costs is included in interest expense. Allocation of Net Income and Net Loss The Partnership Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Unitholders and 1% to the General Partner. Advertising Costs The Partnership expenses the cost of advertising as incurred. Advertising expense for Cedar Brooke Apartments, which is included in operating expenses, was approximately $33,000 and $32,000 for the years ended December 31, 2001 and 2000, respectively. Units of Depositary Receipt The Corporate Limited Partner, an affiliate of the General Partner, serves as a depositary of the Units. The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the Unitholders to certain economic benefits, allocations and distributions of the Partnership. For this reason, Partners' (deficit) capital is herein represented as an interest of the Unitholder. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Segment Reporting SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the financial statements as currently presented. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Note B - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities, as provided for in the Partnership Agreement. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following expenses were paid or accrued to the General Partner and affiliates during the years ended December 31, 2001 and 2000: 2001 2000 (in thousands) Asset management fees (included in general and administrative expenses) $ 37 $ 39 Property management fees (included in operating expenses) 80 58 Reimbursement for services of affiliates (included in general and administrative expenses and investment properties) 169 53 Loan costs (included in other assets) 39 -- The Partnership Agreement provides that the Partnership shall pay in monthly installments to the General Partner, or an affiliate, a yearly asset management fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans outstanding at the end of the month preceding the installment payment; (ii) 1/8 of 1% of the market value of guaranteed mortgage-backed securities as of the end of the Partnership quarter immediately preceding the installment payment; and (iii) 5/8 of 1% of the purchase price of the properties plus improvements for managing the Partnership's assets. In the event the property was not owned at the beginning or end of the year, such fee shall be pro-rated for the short-year period of ownership. Under this provision, fees of approximately $37,000 and $39,000 were paid to the General Partner and its affiliates for the years ended December 31, 2001 and 2000, respectively. During the year ended December 31, 2001 and 2000, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's investment property for providing property management services. The Partnership paid to such affiliates approximately $62,000 and $58,000 for the years ended December 31, 2001 and 2000, respectively. In addition the Partnership paid approximately $18,000 in additional fees during the year ended December 31, 2001 related to under billings in fees for both the residential and commercial properties owned by the Partnership during 2000 and 1999. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $169,000 and $53,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $112,000 for the year ended December 31, 2001. No such fees were incurred for the year ended December 31, 2000. The construction management service fees are calculated based on a percentage of current and certain prior year additions to investment property and are being depreciated over 15 years. For services provided in connection with the refinancing of Cedar Brooke Apartments, the General Partner was paid approximately $39,000 during the year ended December 31, 2001. These costs were capitalized and are included in other assets on the balance sheet. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $8,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 68,364 units of depositary receipt in the Partnership representing 53.07% of the outstanding units at December 31, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of depositary receipt in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 53.07% of the outstanding units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO and its affiliates would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Note C - Commitment Until October 17, 2000, the Partnership was required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures were made from this reserve, operating revenue was to be allocated to such reserves to the extent necessary to maintain the foregoing level. On September 16, 2000, the Partnership solicited the vote of limited partners to amend the Partnership Agreement to eliminate the requirement for the Partnership to maintain reserves equal to at least 5% of the limited partner's capital contributions less distributions to limited partners and instead permit the General Partner to determine reasonable reserve requirements of the Partnership. The vote was sought pursuant to a Consent Solicitation that expired on October 16, 2000 at which time the amendment was approved by the requisite percent of limited partnership interests. Upon expiration of the consent period, a total number of 87,404 units had voted of which 83,616 units had voted in favor of the amendment, 2,268 units had voted against the amendment and 1,520 units had abstained. Note D - Distributions During the year ended December 31, 2001, the General Partner declared and paid distributions of approximately $1,740,000 (approximately $1,723,000 to the limited partners or $13.38 per unit of depositary receipt) consisting of approximately $395,000 (approximately $391,000 to the limited partners or $3.04 per unit of depositary receipt) from operations and approximately $1,345,000 (approximately $1,332,000 to the limited partners or $10.34 per unit of depositary receipt) from proceeds from the refinancing of the mortgage at Cedar Brooke Apartments. During the year ended December 31, 2000, cash distributions of approximately $10,623,000 (approximately $10,517,000 to the limited partners or $81.65 per unit of depositary receipt) were paid to the Partners. These distributions consisted of sales proceeds from the sales of Phoenix Business Campus and Florida #11 Mini Warehouse of approximately $7,738,000 (approximately $7,661,000 to the limited partners or $59.48 per unit of depositary receipt) and approximately $2,885,000 (approximately $2,856,000 to the limited partners or $22.17 per unit of depositary receipt) from operations. Note E - Mortgage Note Payable The principal terms of the mortgage note payable are as follows:
Principal Principal Balance At Stated Balance December 31, Monthly Interest Maturity Due At Property 2001 Payment Rate Date Maturity (in thousands) (in thousands) Cedar Brooke Apartments 1st mortgage $3,839 $ 31 7.44% 07/21 $ --
On June 28, 2001, the Partnership refinanced the mortgage encumbering Cedar Brooke Apartments. The refinancing replaced indebtedness of approximately $2,312,000 with a new mortgage in the amount of $3,875,000. The new mortgage carries a stated interest rate of 7.44% as compared to 7.33% on the previous loan. Payments of principal and interest on the new mortgage loan are due monthly until the loan matures on July 1, 2021 at which time it will be fully amortized. The Partnership was required to establish a capital improvement reserve of approximately $28,000 to cover necessary repairs as stipulated in the loan agreement. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $35,000 due to the write-off of unamortized loan costs. Total capitalized loan costs for the new mortgage were approximately $142,000 at December 31, 2001. The mortgage note is non-recourse and is secured by pledge of the apartment property and by pledge of revenues from the apartment property. The note requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to existing indebtedness. Scheduled principal payments of the mortgage note payable subsequent to December 31, 2001 are as follows (in thousands): 2002 $ 90 2003 97 2004 105 2005 113 2006 121 Thereafter 3,313 $3,839 Note F - Real Estate and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Net Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Cedar Brooke Apartments $3,839 $ 275 $4,040 $ 671
Gross Amount At Which Carried At December 31, 2001 (in thousands) Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years (in thousands) Cedar Brooke Apartments $ 213 $4,773 $4,986 $3,449 02/27/87 5-30
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2001 2000 (in thousands) Real Estate Balance at beginning of year $ 4,796 $ 4,699 Property improvements 190 97 Balance at end of year $ 4,986 $ 4,796 Accumulated Depreciation Balance at beginning of year $ 3,193 $ 2,962 Additions charged to expense 256 231 Balance at end of year $ 3,449 $ 3,193 The aggregate cost of the Partnership's investment properties for Federal income tax purposes at December 31, 2001 and 2000, respectively, is approximately $5,320,000 and $5,130,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 2001 and 2000, respectively, is approximately $3,121,000 and $2,823,000. Note G - Sale of Discontinued Operations The Partnership's two commercial properties, Florida #11 Mini Warehouse and Phoenix Business Campus were sold during November and December of 1999, respectively. These were the only commercial properties owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of these properties, the results of the commercial segment have been shown as loss on sale of discontinued operations. The loss on sale of discontinued operations during the year ended December 31, 2000 was due to additional legal fees and other costs relating to the property sales. Note H - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net (loss) income and Federal taxable (loss) income (in thousands, except unit data): 2001 2000 Net (loss) income as reported $ (57) $ 100 Add (deduct): Depreciation differences (42) (80) Unearned income (5) (8) Other 55 (76) Gain on sale of property -- 110 Accruals and prepaids 2 9 Federal taxable (loss) income $ (47) $ 55 Federal taxable (loss) income per unit of Depositary Receipt $ (.36) $ .42 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported $(2,134) Land and buildings 334 Accumulated depreciation 328 Syndication and distribution costs 3,825 Other 95 Net assets - Federal tax basis $ 2,448 Note I - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants intend to oppose the motion and are scheduled to file their opposition brief on March 26, 2002. A hearing on the motion has been scheduled for April 29, 2002. The Court has set the matter for trial in January 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Johnstown/Consolidated Income Partners (the "Partnership" or the "Registrant") has no officers or directors. Concap Equities, Inc. ("CEI" or the "General Partner") manages and controls the Registrant and has general responsibility and authority in all matters affecting its business. The names of the director and executive officers of the General Partner, their ages and the nature of all positions with CEI presently held by them are set forth below. There are no family relationships between or among any officers and directors. Name Age Position Patrick J. Foye 44 Executive Vice President and Director Martha L. Long 42 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the General Partner since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under auditing standards generally accepted in the United States. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the General Partner has approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2001 for filing with the Securities and Exchange Commission. The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for the current fiscal year. Fees for the last fiscal year were audit services of approximately $31,000 and non-audit services (principally tax-related) of approximately $15,000. Item 10. Executive Compensation Neither the director nor the officers of the General Partner received any remuneration from the Registrant during the year ended December 31, 2001. Item 11. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of December 31, 2001, no person was known to CEI to own of record or beneficially more than five percent of the Units of the Partnership. Number of Percent Name and Address Units of Total Insignia Properties LP (1) 12,146.0 9.43% (an affiliate of AIMCO) Madison River Properties LLC (1) 14,061.5 10.92% (an affiliate of AIMCO) AIMCO Properties LP (2) 42,156.5 32.72% (an affiliate of AIMCO) (1) Entity is indirectly ultimately owned by AIMCO. Its business address is 55 Beattie Place, Greenville, SC 29601. (2) Entity is indirectly ultimately controlled by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, CO 80222. (b) Beneficial Owners of Management Except as noted 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 December 31, 2001, 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% 55 Beattie Place Greenville, SC 29601 Insignia Properties Trust is indirectly ultimately owned by AIMCO. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities, as provided for in the Partnership Agreement. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following expenses were paid or accrued to the General Partner and affiliates during the years ended December 31, 2001 and 2000: 2001 2000 (in thousands) Asset management fees $ 37 $ 39 Property management fees 80 58 Reimbursement for services of affiliates 169 53 Loan costs 39 -- The Partnership Agreement provides that the Partnership shall pay in monthly installments to the General Partner, or an affiliate, a yearly asset management fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans outstanding at the end of the month preceding the installment payment; (ii) 1/8 of 1% of the market value of guaranteed mortgage-backed securities as of the end of the Partnership quarter immediately preceding the installment payment; and (iii) 5/8 of 1% of the purchase price of the properties plus improvements for managing the Partnership's assets. In the event the property was not owned at the beginning or end of the year, such fee shall be pro-rated for the short-year period of ownership. Under this provision, fees of approximately $37,000 and $39,000 were paid to the General Partner and its affiliates for the years ended December 31, 2001 and 2000, respectively. During the year ended December 31, 2001 and 2000, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's investment property for providing property management services. The Partnership paid to such affiliates approximately $62,000 and $58,000 for the years ended December 31, 2001 and 2000, respectively. In addition the Partnership paid approximately $18,000 in additional fees during the year ended December 31, 2001 related to under billings in fees for both the residential and commercial properties owned by the Partnership during 2000 and 1999. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $169,000 and $53,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $112,000 for the year ended December 31, 2001. No such fees were incurred for the year ended December 31, 2000. The construction management service fees are calculated based on a percentage of current and certain prior year additions to investment property and are being depreciated over 15 years. For services provided in connection with the refinancing of Cedar Brooke Apartments, the General Partner was paid approximately $39,000 during the year ended December 31, 2001. These costs were capitalized and are included in other assets on the balance sheet. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $8,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 68,364 units of depositary receipt in the Partnership representing 53.07% of the outstanding units at December 31, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of depositary receipt in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 53.07% of the outstanding units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO and its affiliates would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2001: 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. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS By: CONCAP EQUITIES, INC. General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: March 26, 2002 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/Patrick J. Foye Executive Vice President Date: March 26, 2002 Patrick J. Foye and Director /s/Martha L. Long Senior Vice President Date: March 26, 2002 Martha L. Long and Controller JOHNSTOWN CONSOLIDATED INCOME PARTNERS INDEX OF EXHIBITS EXHIBIT NO. DOCUMENT DESCRIPTION 2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT; incorporated by reference to the Registrant's Current Report on Form 8-K dated October 1, 1998. 3 Certificates of Limited Partnership, as amended to date (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991) 10.1 Property Management Agreement No. 114 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). 10.2 Property Management Agreement No. 309 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). 10.3 Bill of Sale and Assignment dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.4 Assignment and Assumption 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). 10.5 Assignment and 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). 10.6 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). 10.7 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). 10.8 Property Management Agreement No. 121 dated October 1, 1991, by and between the Partnership, Johnstown/Consolidated Income Partners/2 ("JCIP/2") and CCMLP (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.9 Property Management Agreement No. 122 dated October 1, 1991, by and between the Partnership and CCMLP (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.10Assignment and Assumption Agreement dated October 1, 1991, by and between CCMLP and The Hayman Company (Property Management Agreements No. 121 and 122) (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.11Assignment and Agreement as to Certain Property Management Services dated October 1, 1991, by and between CCMLP and ConCap Capital Company (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.12Assignment and Assumption Agreement dated September 1, 1991, by and between the Partnership, and JCIP Associates, Ltd. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.13Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and Metro ConCap Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.14Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and The Hayman Company (the "Hayman Construction Management Agreement") (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.15Assignment and Assumption Agreement dated September 1, 1991, by and between the Partnership, and JCIP Associates, Ltd. (Hayman Construction Management Agreement) (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.16Construction Management Cost Reimbursement Agreement dated October 1, 1991, by and between the Partnership and The Hayman Company (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.17Construction Management Cost Reimbursement Agreement dated October 1, 1991, by and between the Partnership, Johnstown/Consolidated Income Partners/2 and The Hayman Company (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.18Investor 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). 10.19Assignment 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). 10.20Letter 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). 10.21Financial 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). 10.22Financial 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). 10.23Letter of Notice dated December 20, 1991, from PSI to the Partnership regarding the change in ownership and dissolution of ConCap Capital Company whereby PSI assumed the Financial Services Agreement (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.24Property Management Agreement No. 502 dated February 16, 1993, by and between the Partnership and Coventry Properties, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992). 10.25Property Management Agreement No. 516 dated June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.26Property Management Agreement No. 517 dated June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.27Assignment and Agreement as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.28Assignment and Agreement as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.29Stock 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. Incorporate by reference to Form 8-K dated December 8, 1994) 10.30Exercise 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) 10.31Exercise 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). 10.32Multifamily Note dated November 1, 1996, between Johnstown/Consolidated Income Partners, a California limited partnership, and Lehman Brokers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings, Inc. (Incorporated by reference to the annual report on Form 10-K for the year ended December 31, 1996) 10.33Agreement for Purchase and Sale of Existing Facilities dated March 19, 1997, executed by and between Johnstown/Consolidated Income Partners and Johnstown/Consolidated Income Partners/2, each a California limited partnership and Shurgard Storage Centers, Inc., a Delaware corporation, covering certain real property situated in Broward County, Florida (the "Property"). 10.34Special Warranty Deed dated May 8, 1997, executed by Johnstown/Consolidated Income Partners and Johnstown/Consolidated Income Partners/2, each a California limited partnership in favor of Shurgard Storage Center, Inc., a Delaware corporation. 10.35Assignment of Rental Agreements dated May 8, 1997, executed by Johnstown/Consolidated Income Partners and Johnstown/Consolidated Income Partners/2, each a California limited partnership and Shurgard Storage Center, Inc., a Delaware corporation. 10.36Purchase and Sale Contract between Johnstown/Consolidated Income Partners and Everest Storage Holdings, LLC dated July 2, 1999, documenting the sale of Florida #11 Mini Warehouse located in Davie, Florida. (Incorporated by reference to current report on Form 8-K dated November 4, 1999). 10.37First Amendment to Purchase and Sale Contract between Johnstown/Consolidated Income Partners and Everest Storage Holdings, LLC dated September 7, 1999, documenting the sale of Florida #11 Mini Warehouse located in Davie, Florida. (Incorporated by reference to current report on Form 8-K dated November 4, 1999). 10.38Purchase and Sale Contract between Registrant and Cadle's Phoenix Business Center, an Ohio Limited Liability Company, dated October 8, 1999. (Incorporated by reference to current report on Form 8-K dated December 30, 1999). 10.39Addendum to Purchase and Sale Contract between Registrant and Cadle's Phoenix Business Center, an Ohio Limited Liability Company, dated December 8, 1999. (Incorporated by reference to current report on Form 8-K dated December 30, 1999). 10.40Multifamily Note dated June 27, 2001, by and between Johnstown/Consolidated Income Partners, a California limited partnership, and GMAC Commercial Mortgage Corporation relating to Cedar Brooke Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001).