SC 13E3/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13E-3

(Rule 13e-100)

(AMENDMENT NO. 3)

TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13e-3 THEREUNDER

RULE 13e-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE
SECURITIES EXCHANGE ACT OF 1934

VMS NATIONAL PROPERTIES JOINT VENTURE

(Name of the Issuer)

VMS NATIONAL PROPERTIES JOINT VENTURE
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
MAERIL, INC.
AIMCO/IPT, INC.
AIMCO PROPERTIES, LLC
AIMCO PROPERTIES, L.P.
AIMCO-GP, INC.
APARTMENT INVESTMENT AND MANAGEMENT COMPANY

(Name of Person(s) Filing Statement)

Units of Limited Venture Interest

(Title of Class of Securities)

None

(CUSIP Number of Class of Securities)

Martha L. Long
Senior Vice President
Apartment Investment and Management Company
55 Beattie Place
Greenville, South Carolina 29601

(864) 239-1000

(Name, Address, and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of the Person (s) Filing Statement)

Copies to:
Gregory M. Chait
Alston & Bird LLP
1201 West Peachtree Street NW
Atlanta, GA 30309
(404) 881-7000

This statement is filed in connection with (check the appropriate box):

a. o The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934.

b. þ The filing of a registration statement under the Securities Act of 1933.

c. o A tender offer.

d. o None of the above.

Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies:o

Check the following box if the filing is a final amendment reporting the results of the transaction:o

CALCULATION OF FILING FEE

Transaction Valuation*	Amount of Filing Fee
$274,703,984	$29,393.33

* For purposes of calculating the fee only. This amount assumes the sale of the assets of VMS National Properties Joint Venture for $274,703,984. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(A)(ii) and Rule 0-11(c) under the Securities Exchange Act of 1934, as amended, equals $107.00 per $1,000,000 of the asset sale price.

þ Check the box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid       $23,993	Filing Party: Apartment Investment and Management Company
	Aimco Properties, L.P.
Form or Registration No.:   Form S-4	Date Filed: August 22, 2006

TABLE OF CONTENTS

	ITEM 1. SUMMARY TERM SHEET
	ITEM 2. SUBJECT COMPANY INFORMATION
	ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON
	ITEM 4. TERMS OF THE TRANSACTION
	ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
	ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
	ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
	ITEM 8. FAIRNESS OF THE TRANSACTION
	ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
	ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
	ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
	ITEM 12. THE SOLICITATION OR RECOMMENDATION
	ITEM 13. FINANCIAL STATEMENTS
	ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
	ITEM 15. ADDITIONAL INFORMATION
	ITEM 16. EXHIBITS
SIGNATURE
EXHIBIT INDEX
Proxy Statement-Prospectus
Estimate of Value - The Bluffs
Estimate of Value - Chappele Le Grande
Estimate of Value - Forest Ridge Apartments
Estimate of Value - North Park Apartments
Estimate of Value - Shadowood Apartments
Estimate of Value - Terrace Gardens
Estimate of Value - Vista Village Apartments
Estimate of Value - WaterGate Apartments
Appraisal Report - Casa de Monterey Apartments
Appraisal Report - Buena Vista Apartments
Appraisal Report - Crosswood Park Apartments
Appraisal Report - Mountain View Apartments
Appraisal Report - Pathfinder Village Apartments
Appraisal Report - Scotchollow Apartments
Appraisal Report - Towers of Westchester Park Apartments
Amendment No. 1 to Contribution Agreement

TRANSACTION STATEMENT

     This Amendment No. 3 to the Transaction Statement on Schedule 13E-3 relates to the sale of property of VMS National Properties Joint Venture, an Illinois joint venture (the “Partnership”) which is described in the proxy statement-prospectus on Form S-4, filed contemporaneously with this Transaction Statement (the “Proxy Statement-Prospectus”), and constitutes the sale of substantially all of the assets of the Partnership. A copy of the Proxy Statement-Prospectus is filed with this Amendment No. 3 to Schedule 13E-3 as Exhibit (a)(1). The item numbers and responses thereto below are provided in accordance with the requirements of Schedule 13E-3.

ITEM 1. SUMMARY TERM SHEET.

     The information set forth under “SUMMARY” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 2. SUBJECT COMPANY INFORMATION.

     (a) The information set forth under “VMS AND THE PARTNERSHIPS—The Partnerships and the VMS Properties” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (b) The information set forth under “SUMMARY—VMS and the Partnerships” and “VMS AND THE PARTNERSHIPS—The Partnerships and the VMS Properties” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (c) The information set forth under “VMS AND THE PARTNERSHIPS—Distributions and Transfers of Units” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (d) The information set forth under “VMS AND THE PARTNERSHIPS—Distributions and Transfers of Units” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (e) Not applicable.

     (f) Not applicable.

ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.

     (a) – (c) The information set forth under “VMS AND THE PARTNERSHIPS—The Partnerships and the VMS Properties,” “INFORMATION CONCERNING AIMCO AND THE AIMCO OPERATING PARTNERSHIP” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 4. TERMS OF THE TRANSACTION.

     (a) The information set forth under “SUMMARY,” “THE TRANSACTIONS,” “SPECIAL FACTORS—BACKGROUND AND REASONS FOR THE TRANSACTIONS,” “APPROVALS REQUIRED,” “UNITED STATES FEDERAL INCOME TAX

CONSEQUENCES OF THE TRANSACTIONS,” “COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP” and “COMPARISON OF YOUR PARTNERSHIP UNITS AND COMMON OP UNITS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (c) Not applicable.

     (d) The information set forth under “APPRAISAL RIGHTS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (e) There has been no provision made by any of the filing persons in connection with the transaction to grant unaffiliated security holders access to the corporate files of the filing persons or to obtain counsel or appraisal services at the expense of the filing person.

     (f) Not applicable.

ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.

     (a) The information set forth under “VMS AND THE PARTNERSHIPS—Transactions with Affiliates” and “VMS AND THE PARTNERSHIPS—Capital Replacement” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (b) – (c) The information set forth under “SPECIAL FACTORS—BACKGROUND AND REASONS FOR THE TRANSACTIONS” and “THE TRANSACTIONS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (e) The information set forth under “THE TRANSACTIONS,” “SUMMARY—Background and Reasons for the Transactions” and “SPECIAL FACTORS—BACKGROUND AND REASONS FOR THE TRANSACTIONS” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.

     (b) Not applicable.

     (c)(1) – (8) The information set forth under “THE TRANSACTIONS” and “PLANS AFTER THE TRANSACTIONS ARE CONSUMMATED” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.

     (a) – (d) The information set forth under “SPECIAL FACTORS – BACKGROUND AND REASONS FOR THE TRANSACTIONS” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 8. FAIRNESS OF THE TRANSACTION.

     (a) – (b) The information set forth under “SPECIAL FACTORS – FAIRNESS OF THE TRANSACTIONS” and “SPECIAL FACTORS – DETERMINATION OF

CONSIDERATION BASED ON INDEPENDENT APPRAISAL” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (c) The information set forth under “SPECIAL FACTORS – FAIRNESS OF THE TRANSACTIONS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (d) The information set forth under “SPECIAL FACTORS – FAIRNESS OF THE TRANSACTIONS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (e) – (f) Not applicable.

ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS.

     (a) – (c) The information set forth under “SPECIAL FACTORS – DETERMINATION OF CONSIDERATION BASED ON INDEPENDENT APPRAISAL” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.

     (a) – (b) The information set forth under “SOURCE AND AMOUNT OF FUNDS” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (c) The information set forth under “FEES AND EXPENSES” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (d) The information set forth under “SOURCE AND AMOUNT OF FUNDS” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.

     (a) The information set forth under “VMS AND THE PARTNERSHIPS—Beneficial Ownership of Interests in Your Partnership” in the Proxy Statement-Prospectus is incorporated herein by reference.

     (b) Not applicable.

ITEM 12. THE SOLICITATION OR RECOMMENDATION.

     (d) Not applicable.

     (e) The information set forth under “NO RECOMMENDATION BY THE MANAGING GENERAL PARTNER” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 13. FINANCIAL STATEMENTS.

     (a) The information set forth under “SELECTED FINANCIAL INFORMATION OF VMS” in the Proxy Statement-Prospectus is incorporated herein by reference. In addition, the audited financial statements for VMS’s 2005 and 2004 fiscal years set forth in Part II, Item 8 of VMS’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the

SEC on March 31, 2006 and the unaudited financial statements for the nine months ended September 30, 2006 contained in Part I, Item I of VMS’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2006 are incorporated herein by reference.

     (b) Not applicable.

ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.

     (a) – (b) The information set forth under “FEES AND EXPENSES” in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 15. ADDITIONAL INFORMATION.

     (b) The information set forth in the Proxy Statement-Prospectus is incorporated herein by reference.

ITEM 16. EXHIBITS.

(a)(1)	Proxy Statement-Prospectus, filed on Form S-4 on January 16, 2007.
(b)	None.
(c)(1)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Casa de Monterey Apartments.
(c)(2)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Buena Vista Apartments.
(c)(3)*	Appraisal Report, dated as of April 20, 2006, by KTR Newmark, related to Crosswood Park Apartments.
(c)(4)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Mountain View Apartments.
(c)(5)*	Appraisal Report, dated as of April 14, 2006, by KTR Newmark, related to Pathfinder Village Apartments.
(c)(6)*	Appraisal Report, dated as of April 13, 2006, by KTR Newmark, related to Scotchollow Apartments
(c)(7)*	Appraisal Report, dated as of April 20, 2006, by KTR Newmark, related to Towers of Westchester Park Apartments.
(c)(8)	Estimate of Value, provided by CB Richard Ellis, related to The Bluffs.
(c)(9)	Estimate of Value, provided by CB Richard Ellis, related to Chappele Le Grande.
(c)(10)	Estimate of Value, provided by CB Richard Ellis, related to Forest Ridge Apartments.
(c)(11)	Estimate of Value, provided by CB Richard Ellis, related to North Park Apartments.
(c)(12)	Estimate of Value, provided by CB Richard Ellis, related to Shadowood Apartments.
(c)(13)	Estimate of Value, provided by CB Richard Ellis, related to Terrace Gardens.
(c)(14)	Estimate of Value, provided by CB Richard Ellis, related to Vista Village Apartments.
(c)(15)	Estimate of Value, provided by CB Richard Ellis, related to WaterGate Apartments.
(c)(16)	Appraisal Report, dated as of November 28, 2006, by KTR Newmark, related to Casa de Monterey Apartments.
(c)(17)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Buena Vista Apartments.
(c)(18)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Crosswood Park Apartments.
(c)(19)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Mountain View Apartments.
(c)(20)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Pathfinder Village Apartments.
(c)(21)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Scotchollow Apartments.
(c)(22)	Appraisal Report, dated as of December 13, 2006, by KTR Newmark, related to Towers of Westchester Park Apartments.
(d)(1)*	Contribution Agreement dated August 21, 2006 by and between VMS National Properties Joint Venture and AIMCO Properties, LLC.
(d)(2)	Amendment No. 1 to Contribution Agreement, dated January 16, 2007 by and between VMS National Properties Joint Venture and AIMCO Properties, LLC.
(f)	See Annex C to the Proxy Statement-Prospectus, filed on Form S-4 on January 16, 2007.
(g)	See the Proxy Statement-Prospectus, filed on Schedule 14C on January 16, 2007.
*	Previously filed.

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	VMS NATIONAL PROPERTIES JOINT VENTURE
	By:	VMS National Residential Portfolio I
		By:	MAERIL, Inc., its Managing General Partner
			By:	/s/ Martha Long
				Name:	Martha Long
				Title:	Senior Vice President

By:	VMS National Residential Portfolio II
	By:	MAERIL, Inc., its Managing General Partner
		By	/s/ Martha Long
			Name:	Martha Long
			Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	VMS NATIONAL RESIDENTIAL PORTFOLIO I
	By:	MAERIL, Inc., its Managing General Partner
		By:	/s/ Martha Long
			Name:	Martha Long
			Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	VMS NATIONAL RESIDENTIAL PORTFOLIO II
	By:	MAERIL, Inc., its Managing General Partner
		By:	/s/ Martha Long
			Name:	Martha Long
			Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	MAERIL, INC.
	By:	/s/ Martha Long
		Name:	Martha Long
		Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	AIMCO/IPT, INC.
	By:	/s/ Martha Long
		Name:	Martha Long
		Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	AIMCO-GP, INC.
	By:	/s/ Martha Long
		Name:	Martha Long
		Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	AIMCO PROPERTIES, LLC
	By:	AIMCO Properties, L.P., its sole Member
		By:	AIMCO-GP, Inc., its sole General Partner
			By:	/s/ Martha Long
				Name:	Martha Long
				Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	AIMCO PROPERTIES, L.P.
	By:	AIMCO-GP, Inc., its sole General Partner
		By:	/s/ Martha Long
			Name:	Martha Long
			Title:	Senior Vice President

SIGNATURE

     After due inquiry and to the best of its knowledge and belief, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct.

Dated: January 16, 2007	APARTMENT INVESTMENT AND MANAGEMENT COMPANY
	By:	/s/ Martha Long
		Name:	Martha Long
		Title:	Senior Vice President

EXHIBIT INDEX

Exhibit No.	Description
(a)(1)	Proxy Statement-Prospectus, filed on Form S-4 on January 16, 2007.
(b)	None.
(c)(1)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Casa de Monterey Apartments.
(c)(2)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Buena Vista Apartments.
(c)(3)*	Appraisal Report, dated as of April 20, 2006, by KTR Newmark, related to Crosswood Park Apartments.
(c)(4)*	Appraisal Report, dated as of April 11, 2006, by KTR Newmark, related to Mountain View Apartments.
(c)(5)*	Appraisal Report, dated as of April 14, 2006, by KTR Newmark, related to Pathfinder Village Apartments.
(c)(6)*	Appraisal Report, dated as of April 13, 2006, by KTR Newmark, related to Scotchollow Apartments
(c)(7)*	Appraisal Report, dated as of April 20, 2006, by KTR Newmark, related to Towers of Westchester Park Apartments.
(c)(8)	Estimate of Value, provided by CB Richard Ellis, related to The Bluffs.
(c)(9)	Estimate of Value, provided by CB Richard Ellis, related to Chappele Le Grande.
(c)(10)	Estimate of Value, provided by CB Richard Ellis, related to Forest Ridge Apartments.
(c)(11)	Estimate of Value, provided by CB Richard Ellis, related to North Park Apartments.
(c)(12)	Estimate of Value, provided by CB Richard Ellis, related to Shadowood Apartments.
(c)(13)	Estimate of Value, provided by CB Richard Ellis, related to Terrace Gardens.
(c)(14)	Estimate of Value, provided by CB Richard Ellis, related to Vista Village Apartments.
(c)(15)	Estimate of Value, provided by CB Richard Ellis, related to WaterGate Apartments.
(c)(16)	Appraisal Report, dated as of November 28, 2006, by KTR Newmark, related to Casa de Monterey Apartments.
(c)(17)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Buena Vista Apartments.
(c)(18)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Crosswood Park Apartments.
(c)(19)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Mountain View Apartments.
(c)(20)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Pathfinder Village Apartments.
(c)(21)	Appraisal Report, dated as of December 8, 2006, by KTR Newmark, related to Scotchollow Apartments.
(c)(22)	Appraisal Report, dated as of December 13, 2006, by KTR Newmark, related to Towers of Westchester Park Apartments.
(d)(1)*	Contribution Agreement dated August 21, 2006 by and between VMS National Properties Joint Venture and AIMCO Properties, LLC.
(d)(2)	Amendment No. 1 to Contribution Agreement dated January 16, 2007 by and between VMS National Properties Joint Venture and AIMCO Properties, LLC.
(f)	See Annex C to the Proxy Statement-Prospectus, filed on Form S-4 on January 16, 2007.
(g)	See the Proxy Statement-Prospectus, filed on Schedule 14C on January 16, 2007.
*	Previously filed.

EX-99.(A)(1)

As filed with the Securities and Exchange Commission on January 16, 2007

Registration No. 333-136801

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Amendment No. 3

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO PROPERTIES, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Apartment Investment and Management Company — Maryland AIMCO Properties, L.P. — Delaware	Apartment Investment and Management Company — 6798 AIMCO Properties, L.P. — 6513	Apartment Investment and Management Company — 84-1259577 AIMCO Properties, L.P. — 84-1275621
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

4582 South

Ulster Street Parkway,

Suite 1100

Denver, Colorado 80237

(303) 757-8101

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Harry G. Alcock

Executive Vice President and Chief Investment Officer

Apartment Investment and Management Company

4582 South Ulster Street Parkway, Suite 1100

Denver, Colorado 80237

(303) 757-8101

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

With copies to:

Gregory M. Chait

Alston & Bird LLP

1201 West Peachtree Street

Atlanta, Georgia 30309-3424

Telephone: (404) 881-7000

Facsimile: (404) 881-4777

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of the Registration Statement.

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this proxy statement-prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 16, 2007

PROSPECTUS

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.

NOTICE OF OFFER TO ACQUIRE SEVEN PROPERTIES OWNED BY VMS NATIONAL PROPERTIES JOINT VENTURE FOR PARTNERSHIP COMMON UNITS OR CASH

NOTICE OF INTENT TO SELL EIGHT PROPERTIES TO UNAFFILIATED THIRD PARTIES

VMS National Properties Joint Venture, or VMS, entered into an agreement to contribute certain of its properties to AIMCO Properties, LLC, a wholly owned subsidiary of AIMCO Properties, L.P. in a transaction pursuant to which you may elect to receive partnership common units of AIMCO Properties, L.P. or cash or a combination of units and cash. The properties to be contributed are Casa de Monterey, Buena Vista Apartments, Crosswood Park, Mountain View Apartments, Pathfinder Village Apartments, Scotchollow Apartments, and The Towers of Westchester Park. Separately, VMS intends to sell its other eight properties to one or more unaffiliated third parties in one or more sales. The properties to be sold to third parties are North Park Apartments, Chapelle Le Grande, Terrace Gardens, Forest Ridge Apartments, The Bluffs, Watergate Apartments, Shadowood Apartments and Vista Village Apartments. On November 22, 2006, VMS entered into an agreement to sell Watergate Apartments to an unaffiliated third party for a total purchase price of $7,710,000. On November 28, 2006, VMS entered into an agreement to sell Shadowood Apartments to an unaffiliated third party for a total purchase price of $5,300,000. On December 4, 2006, VMS entered into agreements to sell Terrace Gardens and The Bluffs to unaffiliated third parties for total purchase prices of $7,200,000 and $9,650,000, respectively. On December 11, 2006, VMS entered into an agreement to sell Vista Village Apartments to an unaffiliated third party for a total purchase price of $7,250,000. On December 12, 2006, VMS entered into an agreement to sell Chappelle Le Grande to an unaffiliated third party for a total purchase price of $5,250,000. The terms of the two remaining third party sales are not yet defined as purchase agreements have not been entered into. However, VMS has received offers at specific offer prices to purchase the two remaining Unaffiliated Sale Properties. Both transactions are described more fully in this proxy statement-prospectus.

Limited partners electing to waive any portion of the cash distribution and receive Common OP Units instead of all or a portion of cash otherwise distributable to them will receive that number of Common OP Units equal to (i) the amount of the cash distribution waived by such limited partner divided by (ii) the average daily closing price of a share of Class A Common Stock on the NYSE over the twenty trading-day period ended two days prior to consummation of the Affiliated Contribution. Although the Managing General Partner of VMS has provided estimates of the potential cash distributions to limited partners resulting from the Affiliated Contribution, a limited partner will not know the precise amount of the cash distribution or Common OP Units to be received at the time of such limited partner’s election to receive cash, Common OP Units or a combination thereof.

VMS will not complete either of the transactions summarized above if limited partners owning more than 50% of the aggregate units of VMS National Residential Portfolio I and VMS National Residential Portfolio II, the sole participants of VMS National Properties Joint Venture, give written notice of objection to that transaction prior to          , 2007. The process for objecting is more fully described in this proxy statement-prospectus.

You should read this entire proxy statement-prospectus carefully because it contains important information about the transactions.

In particular, you should read carefully the information under the section entitled “Risk Factors,” beginning on page 44.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this proxy statement-prospectus is          , 2007 and is first being mailed to limited partners on or about           , 2007.

WE ARE CURRENTLY SEEKING QUALIFICATION TO ALLOW ALL HOLDERS OF PARTNERSHIP INTERESTS IN VMS THE ABILITY TO ELECT TO RECEIVE COMMON OP UNITS IN CONNECTION WITH THE AFFILIATED CONTRIBUTION. HOWEVER, AT THE PRESENT TIME, IF YOU ARE A RESIDENT OF ONE OF THE FOLLOWING STATES, YOU ARE NOT PERMITTED TO ELECT TO RECEIVE COMMON OP UNITS IN CONNECTION WITH THE AFFILIATED CONTRIBUTION:

ALABAMA	NEW YORK
ALASKA	OREGON
MARYLAND	TENNESSEE
NEW HAMPSHIRE	TEXAS
NEW JERSEY	WASHINGTON

IF YOU ARE NOT A RESIDENT OF ONE OF THESE STATES, YOU MAY ELECT TO WAIVE YOUR RIGHT TO RECEIVE ANY PORTION OF THE CASH DISTRIBUTION WITH RESPECT TO THE AFFILIATED CONTRIBUTION AND TO RECEIVE COMMON OP UNITS DIRECTLY FROM AIMCO PROPERTIES, L.P., AS DESCRIBED HEREIN.

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE DELAWARE SECURITIES ACT BUT RATHER VIA AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT. THE SUBSEQUENT RESALE OR TRANSFER OF THESE SECURITIES IN THE STATE OF DELAWARE CAN ONLY BE MADE PURSUANT TO THE PROVISIONS OF THE DELAWARE SECURITIES ACT OR A VALID EXEMPTION PROMULGATED THEREUNDER.

THESE SECURITIES ARE OFFERED IN THE STATE OF MARYLAND PURSUANT TO REGISTRATION WITH THE DIVISION OF SECURITIES OF THE DEPARTMENT OF LAW OF MARYLAND, BUT REGISTRATION IS PERMISSIVE ONLY AND DOES NOT CONSTITUTE A FINDING THAT THIS PROSPECTUS IS TRUE, COMPLETE, AND NOT MISLEADING, NOR HAS THE DIVISION OF SECURITIES PASSED IN ANY WAY UPON THE MERITS OF, RECOMMENDED, OR GIVEN APPROVAL TO THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE CORPORATION AND SECURITIES BUREAU, MICHIGAN DEPARTMENT OF COMMERCE. THE DEPARTMENT HAS NOT UNDERTAKEN TO PASS UPON THE VALUE OF THESE SECURITIES NOR TO MAKE ANY RECOMMENDATIONS AS TO THEIR PURCHASE.

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECRETARY OF STATE OF MISSISSIPPI, BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

HOW TO OBTAIN ADDITIONAL INFORMATION

This proxy statement-prospectus incorporates important business and financial information about VMS, the Aimco Operating Partnership and Aimco, that is not included in, or delivered with, this document. This information is described on page 106 under “INFORMATION INCORPORATED BY REFERENCE.” VMS, the Aimco Operating Partnership and Aimco file annual, quarterly and current reports, and other statements with the Securities and Exchange Commission (the “Commission” or the “SEC”). You may read and copy any filed document at the Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. Documents filed with the Commission are also available to the public at the Commission’s website at http://www.sec.gov. VMS, the Aimco

Operating Partnership or Aimco, as appropriate, will furnish without charge to you, upon written or oral request, a copy of any or all of the documents incorporated by reference, including the exhibits or schedules to these documents. You should direct any such requests to The Altman Group, Inc., 1200 Wall Street, 3^rd Floor, Lyndhurst, New Jersey 07071; by fax at (201) 460-0050 or by telephone at (800) 217-9608.

PLEASE NOTE

Aimco and the Aimco Operating Partnership have not authorized anyone to provide you with any information or to make any representation other than as is contained or incorporated by reference in this proxy statement-prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this proxy statement-prospectus. You should not assume that the information contained in this proxy statement-prospectus is accurate on any date subsequent to the date set forth on the front of the document or that any information incorporated by reference is correct on any date subsequent to the date of the document incorporated by reference, even though this proxy statement-prospectus is delivered or securities are sold on a later date.

VMS NATIONAL RESIDENTIAL PORTFOLIO I

VMS NATIONAL RESIDENTIAL PORTFOLIO II
(participants in VMS National Properties Joint Venture)
          , 2007

Dear Limited Partner:

VMS National Properties Joint Venture (“VMS”) entered into an agreement (the “Contribution Agreement”) to contribute certain of its properties to AIMCO Properties, LLC (“Aimco Properties, LLC”), a wholly owned subsidiary of AIMCO Properties, L.P. (the “Aimco Operating Partnership”), in a transaction pursuant to which you may elect to receive partnership common units (“Common OP Units”) of the Aimco Operating Partnership, cash or a combination of Common OP Units and cash (the “Affiliated Contribution”). The properties to be contributed in the Affiliated Contribution are Casa de Monterey, Buena Vista Apartments, Crosswood Park, Mountain View Apartments, Pathfinder Village Apartments, Scotchollow Apartments, and The Towers of Westchester Park (collectively, the “Affiliated Contribution Properties”), and are described in more detail below.

Limited partners electing to waive any portion of the cash distribution and receive Common OP Units instead of all or a portion of cash otherwise distributable to them will receive that number of Common OP Units equal to (i) the amount of the cash distribution waived by such limited partner divided by (ii) the average daily closing price of a share of Class A Common Stock on the NYSE over the twenty trading-day period ended two days prior to consummation of the Affiliated Contribution. Although the Managing General Partner of VMS has provided estimates of the potential cash distributions to limited partners resulting from the Affiliated Contribution, a limited partner will not know the precise amount of the cash distribution or Common OP Units to be received at the time of such limited partner’s election to receive cash, Common OP Units or a combination thereof.

Separately, and as a condition to the Affiliated Contribution, VMS intends to sell its other eight properties to one or more unaffiliated third parties in one or more sales (the “Unaffiliated Sales,” and together with the Affiliated Contribution, the “Transactions”). The properties to be sold in the Unaffiliated Sales are North Park Apartments, Chapelle Le Grande, Terrace Gardens, Forest Ridge Apartments, The Bluffs, Watergate Apartments, Shadowood Apartments and Vista Village Apartments (collectively, the “Unaffiliated Sale Properties” and together with the Affiliated Contribution Properties, the “Properties”), and are described in more detail below. On November 22, 2006, VMS entered into an agreement to sell Watergate Apartments to an unaffiliated third party for a total purchase price of $7,710,000. On November 28, 2006, VMS entered into an agreement to sell Shadowood Apartments to an unaffiliated third party for a total purchase price of $5,300,000. On December 4, 2006, VMS entered into agreements to sell Terrace Gardens and The Bluffs to unaffiliated third parties for total purchase prices of $7,200,000 and $9,650,000, respectively. On December 11, 2006, VMS entered into an agreement to sell Vista Village Apartments to an unaffiliated third party for a total purchase price of $7,250,000. On December 12, 2006, VMS entered into an agreement to sell Chapelle Le Grande to an unaffiliated third party for a total purchase price of $5,250,000. The terms of the two remaining Unaffiliated Sales are not yet defined as purchase agreements have not been entered into. However, VMS has received offers at specific offer prices to purchase the two remaining Unaffiliated Sale Properties.

We will not complete the Affiliated Contribution if limited partners owning more than 50% of the aggregate units of VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”, and together with Portfolio I, the “Partnerships”) give written notice of objection prior to          , 2007. A holder of limited partnership interests in either of the Partnerships may object to the Affiliated Contribution by following the procedures set forth in the proxy statement-prospectus on page 59. If the Affiliated Contribution is not consummated, VMS will continue to own the Affiliated Contribution Properties and remain responsible for the related mortgage debt. The Affiliated Contribution is more fully described in this proxy statement-prospectus.

Likewise, we will not complete the Unaffiliated Sales if limited partners owning more than 50% of the aggregate units of the Partnerships give written notice of objection prior to          , 2007. A holder of limited partnership interests in either of the Partnerships may object to the Unaffiliated Sales by following the procedures set forth in the proxy statement-prospectus on page 59. Further, we will not complete an Unaffiliated Sale if the purchase price for such Unaffiliated Sale Property does not exceed eighty-five percent (85%) of (i) the purchase price for such Property set forth in the applicable purchase agreement described above or (ii) the highest offer price for a Property for which a contract has not yet been executed (each, the “Minimum Unaffiliated Sale Price” and, collectively, the “Minimum Unaffiliated Sale Prices”) or $59,636,000 in the aggregate. If any of the Unaffiliated Sales are not consummated, VMS will continue to own the Unaffiliated Sale Properties not sold, the Affiliated Contribution will not be completed and VMS will remain responsible for the related mortgage debt for the Properties it continues to own. The Unaffiliated Sales are more fully described in this proxy statement-prospectus.

In the event that the Transactions are consummated, immediately after the completion of the Affiliated Contribution or the sale of the last remaining Unaffiliated Sale Property, VMS shall liquidate and shall be dissolved, pursuant to the terms of the Joint Venture Agreement of VMS.

MAERIL, Inc., the managing general partner (the “Managing General Partner”), will refinance all or a portion of the existing mortgage indebtedness prior to completion of the Transactions. If a disposition of the Properties is not consummated, there will be an increased risk that VMS will not be able to repay or refinance the existing mortgage and other debt on acceptable terms or fund any deficits, capital expenditures, or other costs and therefore an increased risk that VMS will default upon its indebtedness in the future, and perhaps lose its Properties in the future through mortgage foreclosure. Were VMS to lose any of its Properties, partners could recognize taxable gain and likely would not receive distributions sufficient to pay the tax then due.

Aimco Properties, LLC is an affiliate of ours. As a result, we had significant conflicts of interest in approving the Affiliated Contribution. However, as the managing general partner of the Partnerships, we approved the Transactions after determining that the Transactions are fair to, and in the best interests of, VMS, the Partnerships and the limited partners. In making this determination, we evaluated the tax consequences to the limited partners of a sale to a third party for cash, as well as the likely financial consequences of continuing to operate the Properties. In reaching a determination regarding the fairness of the consideration to be received in the Affiliated Contribution, we relied on appraisals of the Affiliated Contribution Properties prepared by KTR Newmark Real Estate Services LLC, an independent appraisal firm, and our own internal valuations.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

As more fully discussed in the proxy statement-prospectus, limited partners of the Partnerships are not entitled to appraisal rights under applicable law permitting them to seek a judicial determination of the value of their Partnership interests in lieu of accepting the distributions resulting from the Transactions. However, pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization. See “APPRAISAL RIGHTS.”

If you want to object to either, or both, the Affiliated Contribution or the Unaffiliated Sales, please complete and sign the Notice of Objection included with this proxy statement-prospectus and return it to us at the address indicated on the Notice of Objection. Any Notice of Objection received after          , 2007 will not be considered. The Managing General Partner currently anticipates that the Affiliated Contribution will be consummated no later than          , 2007. If you want to receive Common OP Units rather than cash for the Affiliated Contribution, please complete and sign the Consideration Election Form included with this proxy statement-prospectus and return it to us at the address indicated on the Consideration Election Form. Any Consideration Election Form received after          , 2007 will not be considered, unless the Managing General Partner elects, in its sole discretion, to extend the time for submission thereof. If you have any questions regarding this proxy statement-prospectus, please contact our information agent, The Altman Group, Inc., at (800) 217-9608 (toll-free).

Very truly yours,

MAERIL, Inc.

Managing General Partner of the Partnerships

TABLE OF CONTENTS

SUMMARY	1
SPECIAL FACTORS	6
BACKGROUND AND REASONS FOR THE TRANSACTIONS	6
ESTIMATED DISTRIBUTIONS AND TAX CONSEQUENCES	9
FAIRNESS OF THE TRANSACTIONS	24
DETERMINATION OF CONSIDERATION BASED ON INDEPENDENT APPRAISALS	27
RISK FACTORS	44
NO RECOMMENDATION BY THE MANAGING GENERAL PARTNER	56
THE TRANSACTIONS	57
PROCEDURE FOR ELECTION OF AFFILIATED CONTRIBUTION CONSIDERATION	66
APPROVALS REQUIRED	66
PROCEDURE FOR OBJECTING TO A TRANSACTION	66
PLANS AFTER THE TRANSACTIONS ARE CONSUMMATED	67
VMS AND THE PARTNERSHIPS	67
SELECTED FINANCIAL INFORMATION OF VMS	74
CONFLICTS OF INTEREST	75
INFORMATION CONCERNING AIMCO AND THE AIMCO OPERATING PARTNERSHIP	76
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS	77
UNITED STATES FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND COMMON OP UNITHOLDERS	80
UNITED STATES FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS	88
DESCRIPTION OF COMMON OP UNITS	98
DESCRIPTION OF CLASS A COMMON STOCK	104
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP	107
COMPARISON OF YOUR PARTNERSHIP UNITS AND COMMON OP UNITS	113
SOURCE AND AMOUNT OF FUNDS	115
FEES AND EXPENSES	115
APPRAISAL RIGHTS	115
GENERAL LEGAL MATTERS	116
LEGAL MATTERS	116
EXPERTS	117
INFORMATION INCORPORATED BY REFERENCE	117
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS	119
ANNEX A — OFFICERS AND DIRECTORS
ANNEX B — FINANCIAL STATEMENTS OF VMS
ANNEX C — APPRAISAL RIGHTS
ANNEX D — UNAUDITED COMBINED FINANCIAL STATEMENTS OF UNAFFILIATED SALE PROPERTIES AND AFFILIATED CONTRIBUTION PROPERTIES

SUMMARY

This summary highlights material terms of the proposed transactions in this proxy statement-prospectus. We urge you to read this entire proxy statement-prospectus, including the information and the financial statements and notes thereto that are incorporated herein by reference. See “Where You Can Find More Information.”

In this proxy statement-prospectus, interests in the Aimco Operating Partnership are sometimes referred to as “OP Units,” with Partnership Common Units referred to as “Common OP Units,” Partnership Preferred Units referred to as “Preferred OP Units” and High Performance Partnership Units referred to as “High Performance Units” or “HPUs.” Preferred OP Units are interests in the Aimco Operating Partnership that have distribution rights, or rights upon liquidation, winding up or dissolution, that are superior or prior to the Common OP Units. Holders of OP Units are sometimes referred to as “OP Unitholders” and holders of Common OP Units are referred to as “Common OP Unitholders.” Class A Common Stock of Apartment Investment and Management Company (“Aimco”) is referred to as “Class A Common Stock.” Finally, references to “we” and “us” refer to Aimco and the Aimco Operating Partnership as joint filers of this proxy statement-prospectus.

•  The Transactions.  On August 21, 2006, VMS and Aimco Properties, LLC entered into an agreement (the “Contribution Agreement”) pursuant to which VMS agreed to the Affiliated Contribution. The Properties to be contributed in the Affiliated Contribution are Casa de Monterey, Buena Vista Apartments, Crosswood Park Apartments, Mountain View Apartments, Pathfinder Village Apartments, Scotchollow Apartments, and The Towers of Westchester Park. The value of the consideration to be received by VMS for each of the Affiliated Contribution Properties is $230,078,260, which is equal to the greater of the appraised market value of the fee simple interest in such Properties and internal valuations prepared annually by Aimco. Separately, and as a condition to the Affiliated Contribution, VMS intends to complete the Unaffiliated Sales. On November 22, 2006, VMS entered into an agreement to sell Watergate Apartments to an unaffiliated third party for a total purchase price of $7,710,000. On November 28, 2006, VMS entered into an agreement to sell Shadowood Apartments to an unaffiliated third party for a total purchase price of $5,300,000. On December 4, 2006, VMS entered into agreements to sell Terrace Gardens and The Bluffs to unaffiliated third parties for total purchase prices of $7,200,000 and $9,650,000, respectively. On December 11, 2006, VMS entered into an agreement to sell Vista Village Apartments to an unaffiliated third party for a total purchase price of $7,250,000. On December 12, 2006, VMS entered into an agreement to sell Chappelle Le Grande to an unaffiliated third party for a total purchase price of $5,250,000. The terms of the two remaining Unaffiliated Sales are currently unknown as purchase agreements have not been entered into. However, VMS has received offers at specific offer prices to purchase the two remaining Unaffiliated Sale Properties. VMS will not complete an Unaffiliated Sale if the purchase price for such Unaffiliated Sale Property does not exceed eighty-five percent (85%) of (i) the purchase price of such Property set forth in the applicable agreement described above, or (ii) the highest offer price for a Property for which a contract has not yet been executed, or $59,636,000 in the aggregate. We refer to the Affiliated Contribution and the Unaffiliated Sales collectively as the “Transactions” and individually as a “Transaction” in this proxy statement-prospectus. See “SPECIAL FACTORS — BACKGROUND AND REASONS FOR THE TRANSACTIONS,” “THE TRANSACTIONS,” “VMS AND THE PARTNERSHIPS — Capital Replacement,” and “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

•  Limited Partners Right to Object.  In accordance with the terms of the VMS joint venture agreement and the partnership agreements of each of the Partnerships, VMS will not complete a Transaction if limited partners owning more than 50% of the aggregate units of the Partnerships give written notice of objection to that Transaction prior to          , 2007. For additional information, see “PROCEDURE FOR OBJECTING TO A TRANSACTION.”

•  Choice of Consideration.  The limited partners of the Partnerships are being given a choice as to the consideration they will receive with respect to the Affiliated Contribution. The limited partners may elect to waive the right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive that portion of the distributable proceeds from the Affiliated Contribution as Common OP Units instead. Those who so elect and those that do not make an election will receive their portion of the distributable proceeds in cash. The choice of consideration with respect to the Affiliated Contribution is more fully described under “THE TRANSACTIONS.” After the first anniversary of becoming a holder of

1

Common OP Units, each holder has the right, subject to the terms and conditions set forth in the Aimco Operating Partnership’s agreement of limited partnership ( the “Aimco Operating Partnership Agreement”), to require the Aimco Operating Partnership to redeem all or a portion of the Common OP Units held by such party in exchange for shares of Class A Common Stock or a cash amount equal to the value of such shares, as the Aimco Operating Partnership may elect. See “DESCRIPTION OF COMMON OP UNITS “for additional information.

•  Advantages of the Transactions.  The Managing General Partner believes that the Transactions have the following principal advantages:

•  Limited partners that elect to receive Common OP Units as consideration may be entitled to defer a portion of their taxable gain and have the opportunity to participate in the Aimco Operating Partnership’s enterprise.

•  Limited partners that do not elect to receive Common OP Units will forego the potential deferral of taxable gain that may result from receipt of Common OP Units, but will receive a cash distribution of approximately $28,973 per Portfolio I nondefaulted unit and $28,748 per Portfolio II nondefaulted unit from the Affiliated Contribution.

•  The Unaffiliated Sales will result in cash distributions to the limited partners of approximately $8,985 per Portfolio I nondefaulted unit and $8,916 per Portfolio II nondefaulted unit, assuming the Minimum Unaffiliated Sale Price for each Unaffiliated Sale Property is achieved.

•  The Affiliated Contribution provides greater certainty than sales to third parties, due to, among other things, the short feasibility period and abbreviated conditions to closing. Simultaneous approval of the Unaffiliated Sales will permit the Partnerships to avoid the costs and delay of subsequent notifications to the partners.

•  There are various costs associated with being a public reporting company, including costs associated with preparing, auditing and filing periodic reports with the SEC, which would be eliminated if VMS were to terminate its registration and therefore its obligation to file annual, quarterly and other reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Managing General Partner estimates these expenses to be approximately $87,000 per year. This represents approximately 13% of VMS’s general and administrative expenses and 0.20% of its total expenses (based on 2005 expenses of approximately $686,000 and $42,508,000, respectively). In addition, as a result of the Sarbanes-Oxley Act of 2002, the Managing General Partner estimates these costs will increase by approximately 10% beginning in 2007.

•  All of the Properties currently require capital expenditures for which existing resources are not adequate. The refinancing of the Properties, while beneficial to the debt structure of the Partnerships and the Transactions, will not generate sufficient cash to fund the required capital expenditures.

•  The tax benefits of continued investment in the Properties have been reduced for most limited partners.

•  Disadvantages of the Transactions.  The Managing General Partner believes that the Transactions have the following disadvantages:

•  The Unaffiliated Sales will result in taxable gain to the limited partners, and distributable proceeds to the limited partners will likely be insufficient to pay the resulting tax liability.

•  To the extent that limited partners in the Partnerships receive cash in connection with the Affiliated Contribution, all limited partners in the Partnership, including limited partners receiving Common OP Units and no cash, will recognize taxable gain.

•  The Managing General Partner is an affiliate of Aimco Properties, LLC, and the terms of the Affiliated Contribution, including the amount of consideration, were determined without an arms-length negotiation. VMS might obtain greater consideration in a sale to a third party or another transaction that involved independent third-party negotiations.

2

•  In structuring the Affiliated Contribution, no one separately represented the interests of the limited partners. Although the Managing General Partner has a fiduciary duty to the limited partners, it also has responsibilities to its stockholder, which is affiliated with Aimco Properties, LLC, resulting in a conflict of interest.

•  For those limited partners that elect to receive solely Common OP Units as consideration, the Affiliated Contribution will not result in any immediate cash distribution.

For additional information, see “RISK FACTORS,” “SPECIAL FACTORS — BACKGROUND AND REASONS FOR THE TRANSACTIONS — Expected Benefits of the Transactions” and “SPECIAL FACTORS — BACKGROUND AND REASONS FOR THE TRANSACTIONS — Disadvantages of the Transactions.”

•  Conflicts of Interest.  Apartment Investment and Management Company (“Aimco”) beneficially owns both the Managing General Partner of the Partnerships and the general partnership interest and approximately ninety percent (90%) of the common partnership units and equivalents of the Aimco Operating Partnership, as of September 30, 2006. The Aimco Operating Partnership is the sole member of Aimco Properties, LLC and is also a limited partner in the Partnerships. The Managing General Partner has fiduciary duties to the limited partners of the Partnerships, on the one hand, and to Aimco, as its sole stockholder, on the other. As a result, in considering the Affiliated Contribution, the Managing General Partner has substantial conflicts of interest. Dissolution of the partnership would result in the loss of management fees to the Managing General Partner and its affiliates. As of September 30, 2006, Aimco or its affiliates also hold the junior mortgage and certain other indebtedness and bankruptcy claims, including a mortgage participation, general partner loans and other accrued fees in an aggregate amount of $90,581,533 that will be repaid as a part of the refinancing preceding the Transactions. See “RISK FACTORS,” “CONFLICTS OF INTEREST” and “VMS AND THE PARTNERSHIPS — Transactions with Affiliates” for additional information.

•  Fairness of the Transactions.  Although the Managing General Partner has interests that may conflict with those of the limited partners of the Partnerships, the Managing General Partner is of the opinion that each Transaction, considered independently, is fair to the limited partners in view of the factors listed below and described in greater detail under “FAIRNESS OF THE TRANSACTIONS.”

•  The consideration for the Affiliated Contribution Properties is equal in value to the greater of the appraised market value of the Properties and internal valuations prepared annually by Aimco.

•  VMS will not complete a Transaction if limited partners owning more than 50% of the aggregate units of the Partnerships give written notice of objection to that Transaction prior to          , 2007.

•  The Managing General Partner arrived at the Minimum Unaffiliated Sale Prices by applying a 15% discount to (i) the purchase price for each Unaffiliated Sale Property contained in the purchase agreement for such Property described elsewhere herein, or (ii) the highest offer price for a Property for which a contract has not yet been executed.

•  Limited partners that elect to receive Common OP Units as consideration for the Affiliated Contribution may be entitled to defer a portion of their taxable gain and would have the opportunity to participate in the Aimco Operating Partnership’s enterprise.

•  The junior mortgage loans encumbering the Properties and certain other indebtedness and bankruptcy claims of VMS are held by Aimco or its affiliates and will be repaid as part of the refinancing to be concluded prior to the closing of either of the Transactions.

•  Pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization.

3

The factors considered by the Managing General Partner in evaluating the fairness of the Transactions are more fully described under “FAIRNESS OF THE TRANSACTIONS.”

•  After the Transactions are Consummated.  After completion of the Transactions, any available proceeds will be distributed to the partners in accordance with the joint venture and partnership agreements (including default provisions with respect to limited partners failing to satisfy certain obligations thereunder), and the elections, if any, of the limited partners as to the nature of the consideration desired, and VMS and the Partnerships will be dissolved in accordance with the terms of their respective venture and partnership agreements. Upon dissolution of VMS, the Managing General Partner intends to file a notice with the SEC that will result in a termination of VMS’s obligation to file annual, quarterly and other reports with the SEC pursuant to the Exchange Act. There are various costs associated with being a public reporting company, including costs associated with preparing, auditing and filing periodic reports with the SEC, which would be eliminated if VMS were to terminate its registration under the Exchange Act. For additional information, see “PLANS AFTER THE TRANSACTIONS ARE CONSUMMATED.”

•  VMS and the Partnerships.  The general partners of VMS are Portfolio I and Portfolio II. VMS is owned 70.69% by Portfolio I and 29.31% by Portfolio II. There are currently 644 units of Portfolio I and 267 units of Portfolio II issued and outstanding, which are held of record by 669 and 257 limited partners, respectively. VMS’s investment portfolio currently consists of the following 15 residential apartment complexes: Buena Vista Apartments, a 92-unit complex in Pasadena, California; Casa de Monterey, a 144-unit complex in Norwalk, California; Crosswood Park Apartments, a 180-unit complex in Citrus Heights, California; Mountain View Apartments, a 168-unit complex in San Dimas, California; Pathfinder Village Apartments, a 246-unit complex in Fremont, California; Scotchollow Apartments, a 418-unit complex in San Mateo, California; The Bluffs, a 137-unit complex in Milwaukee, Oregon; Vista Village Apartments, a 220-unit complex in El Paso, Texas; Chapelle Le Grande, a 105-unit complex in Merrillville, Indiana; Shadowood Apartments, a 120-unit complex in Monroe, Louisiana; The Towers of Westchester Park, a 303-unit complex in College Park, Maryland; Terrace Gardens, a 126-unit complex in Omaha, Nebraska; North Park Apartments, a 284-unit complex in Evansville, Indiana; Watergate Apartments, a 140-unit complex in Little Rock, Arkansas; and Forest Ridge Apartments, a 278-unit complex in Flagstaff, Arizona. An affiliate of the Aimco Operating Partnership currently serves as manager of the Properties. The principal executive offices of the Managing General Partner, the Partnerships and VMS are located at 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, telephone (864) 239-1000. For additional information about VMS and the Partnerships, see “VMS AND THE PARTNERSHIPS” and “GENERAL INFORMATION.”

•  The Aimco Operating Partnership and Aimco.  The Aimco Operating Partnership is a Delaware limited partnership that conducts substantially all of the operations of Aimco. As of September 30, 2006, Aimco beneficially owns approximately ninety percent (90%) of the Common OP Units and equivalents of the Aimco Operating Partnership. Aimco is a real estate investment trust (a “REIT”) that owns and manages multifamily apartment properties throughout the United States. The Aimco Operating Partnership, through its operating divisions and subsidiaries, holds substantially all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. As of September 30, 2006, the Aimco Operating Partnership owned or managed a portfolio of 1,290 apartment properties containing 224,837 apartment units located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, as of January 1, 2006, Aimco is the largest owner of multifamily apartment properties in the United States. The general partner of the Aimco Operating Partnership is AIMCO-GP, Inc., a Delaware corporation, which is a wholly owned subsidiary of Aimco. The Aimco Operating Partnership is the sole member of Aimco Properties, LLC. The principal executive offices of Aimco, the Aimco Operating Partnership and Aimco Properties, LLC are located at 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. For additional information about Aimco, the Aimco Operating Partnership and Aimco Properties, LLC, see “INFORMATION CONCERNING AIMCO AND THE AIMCO OPERATING PARTNERSHIP.”

•  Tax Consequences of the Transactions.  The Unaffiliated Sales will be taxable transactions for United States federal income tax purposes and likely for state and local income tax purposes as well. To the extent

4

that limited partners receive cash in connection with the Affiliated Contribution, the Affiliated Contribution will also be in part a taxable transaction for such tax purposes because VMS will receive cash in the Affiliated Contribution. Any taxable income from the Unaffiliated Sales and the Affiliated Contribution will pass through, and be taxable, to the partners. Taxable income from the Affiliated Contribution will pass through, and be taxable, to all limited partners, including those who elect to receive Common OP Units rather than cash in connection with the Affiliated Contribution. Additional gain may be recognized in connection with actual or deemed distributions of cash by VMS and the Partnerships. There are also other tax considerations related to the Affiliated Contribution and to investment in the Aimco Operating Partnership and Aimco that you should consider. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS” for additional information.

•  Appraisal Rights.  Pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization. To exercise this right, you must take the necessary steps provided by the Contribution Agreement. See “APPRAISAL RIGHTS” for additional information.

5

SPECIAL FACTORS

BACKGROUND AND REASONS FOR THE TRANSACTIONS

General.  VMS was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement dated September 27, 1984, between Portfolio I and Portfolio II. Its primary business is real estate ownership and related operations. VMS was formed for the purpose of making investments in various types of real properties that offer potential capital appreciation and cash distributions to its partners. Effective December 12, 1997, the managing general partner of each of the Partnerships was transferred from VMS Realty Investment, Ltd. (formerly VMS Realty Partners) to MAERIL, Inc., a wholly-owned subsidiary of MAE GP Corporation and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP Corporation was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Insignia and IPT were merged into Aimco effective October 1, 1998 and February 26, 1999, respectively. Thus, the Managing General Partner is now a wholly-owned subsidiary of Aimco.

Since that time, Aimco and the Managing General Partner have sought to maximize the operating results and, ultimately, the net realizable value of each of VMS’s holdings in order to achieve the best possible return for the investors. The Managing General Partner regularly analyzes the effects of each Property’s operating performance on the financial position of VMS and whether additional capital expenditures on these Properties or investments in alternative assets would benefit VMS’s financial position. The Managing General Partner periodically evaluates the physical improvement requirements of the Properties and the availability of favorable financing opportunities to fund these requirements. In addition, the Managing General Partner monitors the conditions of the real estate markets affecting the Properties, considering whether a disposition of any of the Properties would further the Partnerships’ best interests.

The terms of the senior mortgages currently encumbering the Properties contemplate the payment of an agreed valuation amount of $110,000,000 for such indebtedness, which is less than the applicable face amount of $152,225,000, if repayment occurs after January 1, 2007 and on or prior to January 1, 2008, the maturity date. Approximately $13,794,000 of the principal amount owing with respect to the senior mortgages has been paid as of September 30, 2006 and the remaining unpaid portion of the agreed valuation amount will be repaid with the proceeds of the refinancing discussed elsewhere herein. The structure including an agreed valuation amount and a face amount is based on the VMS bankruptcy plan. The structure of certain secured notes originally held by the FDIC contemplated preservation of the full principal amount, in this case $152,225,000, and an agreed valuation amount of $110,000,000 that could be paid if there were no defaults. The discounted payoff was based on the actual value of the collateral underlying the notes from June, 1992, as determined in the bankruptcy proceeding. This structure reflects a basic principle of bankruptcy law that bases an allowed secured claim on the value of the collateral securing the claim, and treats any deficiency as unsecured. Bankruptcy provisions also permit any deficiency to continue to be secured by the property that originally collateralized the debt. The existing structure therefore reflects an outcome consistent with the bankruptcy laws. In addition, the mortgage indebtedness provides that if a default occurs with respect to a particular mortgage and that mortgage is subsequently repaid prior to January 1, 2008, then an additional prepayment premium (sometimes known as yield maintenance and referred to as the “Prepayment Consideration”) of not less than 1% of the agreed valuation amount would also be owed. The Prepayment Consideration is equal to the greater of: (x) one percent of the agreed valuation amount; and (y) the present value of a series of payments, each equal to the Payment Differential (as defined below) and payable on each monthly payment date over the remaining original term of the Amended, Restated, and Consolidated Senior Notes and on January 1, 2008, discounted at the Reinvestment Yield (as defined below) for the number of months remaining from the date prepayment is received through and including January 1, 2008.

With respect to the calculation of the Prepayment Consideration, (i) “Reinvestment Yield” means the lesser of (a) the yield on the US treasury issue (primary issue) with a maturity date closest to January 1, 2008, or (b) the yield on the US 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 WSJ on the date that is 14 days prior to the date prepayment is received (or if such bid price is not published on that date, the next preceding date on which that bid price is so published); and (ii) “Payment Differential” means the difference between 8.5% per annum and the Reinvestment Yield, divided by 12, and then multiplied by the agreed valuation amount or such other lesser amount

6

being prepaid in order to reinstate the debt) on the date prepayment is actually made. In no event will it be less than zero.

In any event, if any of the mortgages are not paid on or before January 1, 2008, a default will occur and the full face amount of that mortgage, rather than the agreed valuation amount, will become due.

Under the terms of the existing outstanding mortgage indebtedness encumbering the Properties, including prohibitions on repayment prior to January 1, 2007, completion of either Transaction prior to that date would have required the consent of the holders of that indebtedness. The prohibition on prepayment is reflected in the mortgage indebtedness provisions that preclude the “right or privilege to prepay all or any portion of the unpaid principal balance of [the note] until January 1, 2007.” Thus, because of the note provision that precludes prepayment, the consent of the holders of the note was required to be able to waive this provision. Further, a contrived default could not enable the notes to be prepaid without payment of the Prepayment Consideration outlined above.

Additionally, as a result of limits on cash available for capital expenditures imposed by the terms of the senior mortgage indebtedness to be repaid with the proceeds of the refinancing, which limits such expenditures to an annual limit of $300 per unit per Property, VMS does not have sufficient funds to pay for necessary capital expenditures. As noted below in “ESTIMATED DISTRIBUTIONS AND TAX CONSEQUENCES,” the Managing General Partner anticipates that the proceeds of the refinancing available for distribution to the limited partners will be approximately $11,220,100, assuming the limited partners do not object to the Transactions. Even if VMS did not distribute those estimated proceeds, estimated capital expenditure needs of approximately $32,100,498, described in more detail on pages 62-65 below, would exceed those proceeds by more than $20,000,000. As a result, the Managing General Partner believes that operations will be insufficient, even following a favorable refinancing, to finance these necessary capital expenditures. If either Transaction does not occur and VMS continues to own some or all of the Properties, the proceeds of the refinancing received by VMS after repayment of existing indebtedness and bankruptcy claims will be retained by VMS to pay for a portion of the necessary capital expenditures.

On April 4, 2006, Mr. Terry Considine, Mr. Thomas Herzog, Mr. Harry Alcock, Mr. Robert Walker, Ms. Martha Long, Mr. Scott Anderson and Mr. Derek McCandless convened to discuss the VMS debt and bankruptcy structure, including the impending maturity of the outstanding indebtedness and potential alternatives for addressing the shortfall in cash necessary for capital expenditures.

The attendees also discussed Aimco’s potential interest in acquiring certain of the properties, as well as its fiduciary duties to the limited partners if such a transaction were undertaken. In light of the fiduciary duties owed to the unaffiliated limited partners, the group decided that the minimum purchase price for any property that Aimco acquired would be the valuation ascribed to such property by Aimco’s internal valuations. The decision was made to obtain appraisals to confirm the value of the properties that Aimco had expressed an interest in acquiring. The decision was also made to evaluate the proceeds to limited partners in the event of a sale of such properties, as well as the tax consequences to limited partners from such a sale.

On May 4, 2006, Aimco’s outside counsel distributed a draft purchase agreement containing terms upon which Aimco would purchase the Affiliated Contribution Properties for cash.

On May 16, 2006, Mr. Alcock, Ms. Long and Ms. Danielle McClure reviewed the results of the appraisals in light of the fiduciary duties owed to unaffiliated limited partners and Aimco’s investment criteria. Mr. Alcock determined that Aimco would pay an aggregate purchase price that included the full appraised values of the six Affiliated Contribution Properties with appraised values higher than Aimco’s internal values. Mr. Alcock also confirmed that the aggregate purchase price would include Aimco’s full internal value of the one property with an Aimco internal value higher than its appraised value.

On May 23, 2006, Mr. Anderson relayed to Mr. McCandless that the estimated tax consequences to limited partners of a cash sale of all of the Properties would require payment by limited partners of state and federal taxes of approximately $12,000 per limited partnership unit above anticipated sales proceeds, assuming for purposes of this calculation that a sale price of approximately $56.0 million was achieved for the Unaffiliated Sale Properties. This assumption was based on broker estimates of value obtained by the Managing General Partner prior to the marketing of the Unaffiliated Sale Properties. Mr. Anderson and Mr. McCandless discussed possible alternative

7

transaction structures that might improve the negative tax situation facing limited partners in the event of an all-cash sale of the Properties. Mr. Anderson and Mr. McCandless also discussed these alternative transaction structures with members of Aimco’s tax department.

Mr. Considine, Mr. Miles Cortez and Mr. McCandless discussed the potential for improved tax consequences to limited partners in the event of a transaction involving Common OP Units as consideration. Mr. Considine decided to pursue a transaction that would provide limited partners the opportunity to elect Common OP Units in lieu of cash.

On July 5, 2006, Mr. Alcock, Mr. Anderson, Mr. McCandless, Ms. Long and Mr. Jeff Ogden met to discuss the possibility of a refinancing accompanied by a cash distribution to limited partners. After discussing the consequences of an interim cash distribution resulting from a refinancing and the fact that a refinancing would assist with the sale and contribution of the Properties by eliminating the cross-collateralization features of the existing indebtedness, Mr. Alcock and Mr. Ogden decided to proceed with a refinancing prior to the sale and the contribution.

On August 17, 2006, Aimco’s outside counsel circulated a revised draft of the purchase agreement containing provisions contemplating the structure described herein, whereby limited partners will be able to waive the right to receive cash and receive Common OP Units instead.

Given the time period that had elapsed since the previously received appraisals, in November 2006 Ms. Long, on behalf of the Managing General Partner, requested that KTR, the independent appraiser who had delivered the appraisals, perform and submit updated appraisals.

In November and December 2006, KTR delivered updated appraisals which reflected an increase in the appraised value for each of the Affiliated Contribution Properties. On December 18, 2006, Mr. Alcock and Ms. Long reviewed the results of the new appraisals in light of the fiduciary duties owed to unaffiliated limited partners and Aimco’s investment criteria. Mr. Alcock determined that Aimco would pay the higher aggregate purchase price that included the updated full appraised values of the six Affiliated Contribution Properties with appraised values higher than Aimco’s internal values. Mr. Alcock also confirmed that the aggregate purchase price would include Aimco’s full internal value of the one property that continued to have a higher Aimco internal value than its appraised value.

As a result of the foregoing, the Managing General Partner will refinance the outstanding indebtedness to implement a debt structure that will provide greater flexibility than the existing indebtedness and will result in a cash distribution to limited partners, assuming the limited partners do not object to the Transactions. In the event that either Transaction does not occur and VMS continues to own some or all of the Properties, the proceeds of the refinancing received by VMS after repayment of existing indebtedness and bankruptcy claims will be retained by VMS to pay for a portion of the necessary capital expenditures. The Managing General Partner will complete the refinancing substantially as described herein. The Managing General Partner believes the refinancing will provide sufficient funds to repay the senior and junior mortgages on all of the Properties, loans made by the Managing General Partner and its affiliates to VMS, and other indebtedness owed to affiliates of the Managing General Partner and to fund the cash distribution to limited partners, all as described herein. As noted above, the refinancing is not expected to generate sufficient funds to fund the necessary capital expenditures required by the Properties, even if a cash distribution to limited partners did not occur. Therefore, even following the refinancing, the Managing General Partner believes it is in the best interests of the limited partners of the Partnerships for VMS to dispose of the Properties. In light of the existing and ongoing capital expenditure needs of the Properties, the Managing General Partner does not believe that continuing to operate the Properties indefinitely is feasible.

In light of the foregoing, the Managing General Partner’s review of existing market conditions for real estate such as the Affiliated Contribution Properties, Aimco’s agreement to pay consideration equal to the greater of the appraised value or Aimco’s internal valuation for each of the Affiliated Contribution Properties, the ability for limited partners to defer a certain amount of adverse tax consequences by electing to receive Common OP Units and the other benefits of the Affiliated Contribution described herein, the Managing General Partner agreed to the terms of the Affiliated Contribution.

As discussed above, the limited partners of the Partnerships are being given a choice as to the consideration they will receive with respect to the Affiliated Contribution. The Partnerships’ partnership agreements do not permit

8

the Partnerships to distribute any consideration other than cash in liquidation of the interest of a limited partner. However, the limited partners may elect to waive the right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead. Aimco and its affiliates which own limited partnership interests in the Partnerships currently intend to waive their right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units instead. The Partnerships’ partnership agreements also do not permit a special allocation of gain to the limited partners receiving cash, even if such special allocation would be permitted under applicable law. Thus, the receipt of cash by some limited partners will have an adverse tax consequence on those limited partners who choose to waive any portion of the cash distribution and receive Common OP Units instead.

ESTIMATED DISTRIBUTIONS AND TAX CONSEQUENCES

If the Transactions occur, it is anticipated that distributions to the limited partners will result from each of (i) the refinancing, (ii) the Unaffiliated Sales, and (iii) the Affiliated Contribution. In addition, each of the three items will have tax consequences to the limited partners. The following discussion and tables summarize the estimated distributions as well as the anticipated tax consequences. After the summaries of the estimated distributions with respect to each item, and of the anticipated tax consequences with respect to each item, there is an overall summary that combines the estimated distributions and tax consequences for all three items.

In a series of transactions from November 1999 until March 30, 2001, an affiliate of the Aimco Operating Partnership acquired a portion of the “Class 3-C Claim,” an unsecured claim under the confirmed VMS bankruptcy plan, for an aggregate cost of approximately $13,809,159, and the “MF VMS Interest,” an additional claim under the confirmed VMS bankruptcy plan for an aggregate cost of approximately $9,800,000. The Managing General Partner currently estimates that an affiliate of the Aimco Operating Partnership, as owner of a portion of the Class 3-C Claim, will receive approximately $37,115,625 from the proceeds of the refinancing preceding the Transactions. Under the confirmed VMS bankruptcy plan, after the Class 3-C Claim is paid, the owner of the MF VMS Interest will also receive 25% of any surplus in the partnership advance account established under the confirmed VMS bankruptcy plan utilized to pay the Class 3-C Claim (the “PAA”). The Managing General Partner estimates that the surplus will be approximately $11,532,608. Accordingly, 25% of the PAA surplus is estimated to be approximately $2,883,152. The remaining 75% of that surplus will be paid to Portfolio I and Portfolio II. After the payments from the PAA are made, half of any remaining proceeds will be paid to Aimco as the owner of the MF VMS Interest, and half to VMS. The Managing General Partner estimates that this payment will equal $55,554,178 from the proceeds of the refinancing and the Transactions. These estimates assume that the refinancing preceding the Transactions described herein occurs and the Properties are contributed or sold as described herein, although there can be no assurance that these estimates will be accurate when the refinancing and the Transactions actually occur.

Non-resident withholding tax paid by the Partnerships on behalf of a partner to a state tax jurisdiction should be creditable against the tax liability of that partner in the jurisdiction. Limited partners are advised to consult their tax advisors.

Unless otherwise expressly stated, amounts relate to units of each Partnership that are not in default under the applicable partnership agreement (“nondefaulted units”). The Managing General Partner has determined that roughly 5% of the units of each Partnership are in default (“defaulted units”). See “Special Considerations for Defaulted Units.”

Estimated Distributions

Proceeds of Refinancing.  The Managing General Partner will complete the refinancing substantially as described herein prior to completion of the Transactions. Proceeds of the refinancing will be used to satisfy the outstanding mortgage and other indebtedness of VMS. Assuming the limited partners do not object to the Transactions, any available residual proceeds would be distributed to the partners in accordance with the joint venture and partnership agreements (including default provisions with respect to limited partners failing to satisfy certain obligations thereunder) and applicable law. In the event that either Transaction does not occur and VMS continues to own some or all of the Properties, the proceeds of the refinancing received by VMS after repayment of

9

existing indebtedness and bankruptcy claims will be retained by VMS to pay for a portion of the necessary capital expenditures.

The first table below summarizes the total estimated proceeds of the refinancing. The two succeeding tables break down the total between the two portfolios, and summarize the estimated proceeds of the refinancing per unit of Portfolio I and per unit of Portfolio II.

Amounts below have been estimated as of January 1, 2007, based upon information available to the Managing General Partner as of September 30, 2006. For more detail regarding payments to Aimco and its affiliates, see “CONFLICTS OF INTEREST.”

TOTAL ESTIMATED DISTRIBUTIONS
FROM REFINANCING

New mortgage principal	$	207,550,000
Less: Estimated closing costs		(4,571,000	)
Less: Pay off of senior mortgages		(95,693,052	)
Less: Pay off of junior mortgages		(21,693,158	)
Less: Class 3-C Claim under Bankruptcy Plan		(42,000,000	)
Less: MF VMS Interest from Partnership Advance Account		(2,883,152	)
Less: 50% of residual to MF VMS Interest		(16,030,091	)
Less: Pay off of affiliate-loans		(12,649,527	)
Less: Estimated non-resident withholding taxes		(809,920	)
Distributable to Portfolio I & Portfolio II	$	11,220,100

ESTIMATED DISTRIBUTIONS
FROM REFINANCING
PER UNIT OF PORTFOLIO I

Distributable to Portfolio I & Portfolio II	$	11,220,100
Percentage to Portfolio I		70.69	%
Distributable to Portfolio I		7,931,489
Total number of Portfolio I units		611.25
Distributable per Portfolio I unit	$	12,976

ESTIMATED DISTRIBUTIONS
FROM REFINANCING
PER UNIT OF PORTFOLIO II

Distributable to Portfolio I & Portfolio II	$	11,220,100
Percentage to Portfolio II		29.31	%
Distributable to Portfolio II		3,288,611
Total number of Portfolio II units		255.42
Distributable per Portfolio II unit	$	12,875

Proceeds of Unaffiliated Sales.  Following the completion of the Unaffiliated Sales, which is a condition to the Affiliated Contribution and which may occur on a property-by-property basis, any available proceeds will be distributed to the partners in accordance with the joint venture and partnership agreements (including default provisions with respect to limited partners failing to satisfy certain obligations thereunder) and applicable law.

10

The first table below summarizes the total estimated proceeds of the Unaffiliated Sales. The two succeeding tables break down the total between the two portfolios, and summarize the estimated proceeds of the Unaffiliated Sales per unit of Portfolio I and per unit of Portfolio II.

The three tables below assume the Transaction was completed on September 30, 2006 and that proceeds from the Unaffiliated Sales were equal to the Minimum Unaffiliated Sale Prices. These calculations are estimates based upon information available to the Managing General Partner as of September 30, 2006. VMS will not proceed with an Unaffiliated Sale, however, if it is unable to attain at least the Minimum Unaffiliated Sale Price with respect to such Property.

TOTAL ESTIMATED DISTRIBUTIONS
FROM UNAFFILIATED SALES

Gross purchase price	$	59,636,000
Plus: Cash and cash equivalents		545,458
Plus: Other partnership assets		1,024,361
Less: Mortgage debt including accrued interest		(39,550,000	)
Less: Due to affiliates		(52,734	)
Less: 50% of residual proceeds to MF VMS Interest		(8,976,596	)
Less: Accounts payable, accrued expenses and other liabilities		(1,998,277	)
Less: Reserve for contingencies		(212,748	)
Less: Closing costs		(1,192,720	)
Less: Estimated non-resident withholding taxes		(1,206,959	)
Less: Estimated transfer taxes		(35,397	)
Less: Estimated state entity taxes		(210,751	)
Distributable to Portfolio I & Portfolio II	$	7,769,637

ESTIMATED DISTRIBUTIONS
FROM UNAFFILIATED SALES
PER UNIT OF PORTFOLIO I

Distributable to Portfolio I & Portfolio II	$	7,769,637
Percentage to Portfolio I		70.69	%
Distributable to Portfolio I		5,492,356
Total number of Portfolio I units		611.25
Distributable per Portfolio I unit	$	8,985

ESTIMATED DISTRIBUTIONS
FROM UNAFFILIATED SALES
PER UNIT OF PORTFOLIO II

Distributable to Portfolio I & Portfolio II	$	7,769,637
Percentage to Portfolio II		29.31	%
Distributable to Portfolio II		2,277,281
Total number of Portfolio II units		255.42
Distributable per Portfolio II unit	$	8,916

11

Proceeds of Affiliated Contribution.  Following the completion of the Affiliated Contribution, the cash proceeds will be distributed to the partners in accordance with the joint venture and partnership agreements (including default provisions with respect to limited partners failing to satisfy certain obligations thereunder), and the elections, if any, of the limited partners as to the nature of the consideration desired.

The first table below summarizes the estimated distribution to the limited partners that would have taken place if the Affiliated Contribution had been completed on September 30, 2006. Limited partners electing to receive Common OP Units instead of cash will receive Common OP Units. The number of Common OP Units will be equal to the amount of the cash distribution waived, divided by the average daily closing price of a share of Class A Common Stock on the NYSE over the twenty trading-day period ended two days prior to consummation of the Affiliated Contribution. Limited partners are instructed to contact The Altman Group, Inc. with any direct questions or requests for information, including an estimate of Common OP Units issuable with respect to waivers of particular cash amounts, as of the most recent practicable date. Please see the information set forth under “HOW TO OBTAIN ADDITIONAL INFORMATION.”

The calculations reflected in the tables below are estimates based upon information available to the Managing General Partner as of September 30, 2006. There can be no assurance that these estimates will prove accurate, particularly as relates to limited partners that elect to waive any portion of the cash distribution and receive Common OP Units instead, since the number of Common OP Units to be issued in exchange for the contribution of the Affiliated Contribution Properties will be fixed at the time the Affiliated Contribution is consummated as described above, and the market value of the Class A Common Stock will likely fluctuate between that date and the date Common OP Units are received by limited partners. The amount of state tax withholding will vary depending on the percentage of limited partners that elect to receive Common OP Units, and this variation may affect the amount of the cash distributions. However, such variation is not expected to be material.

ESTIMATED DISTRIBUTIONS
FROM AFFILIATED CONTRIBUTION

Gross purchase price	$	230,078,260
Plus: Cash and cash equivalents		1,080,373
Plus: Other partnership assets		2,726,585
Less: Mortgage debt including accrued interest		(168,000,000	)
Less: Due to affiliates		(58,008	)
Less: 50% of residual proceeds to holder of MF VMS Interest		(30,547,491	)
Less: Accounts payable, accrued expenses and other liabilities		(2,342,610	)
Less: Reserve for Contingencies		(820,792	)
Less: Estimated non-resident withholding taxes		(5,493,368	)
Less: Estimated transfer taxes		(1,568,826	)
Less: Estimated state entity taxes		(1,600	)
Distributable to Portfolio I & Portfolio II	$	25,052,523

ESTIMATED DISTRIBUTIONS
FROM AFFILIATED CONTRIBUTION
PER UNIT OF PORTFOLIO I

Distributable to Portfolio I & Portfolio II	$	25,052,523
Percentage to Portfolio I		70.69	%
Distributable to Portfolio I		17,709,629
Total number of Portfolio I units		611.25
Distributable per Portfolio I unit	$	28,973

12

ESTIMATED DISTRIBUTIONS
FROM AFFILIATED CONTRIBUTION
PER UNIT OF PORTFOLIO II

Distributable to Portfolio I & Portfolio II	$	25,052,523
Percentage to Portfolio II		29.31	%
Distributable to Portfolio II		7,342,894
Total number of Portfolio II units		255.42
Distributable per Portfolio II unit	$	28,748

The table below indicates the number of Common OP Units that would be issuable in lieu of specified amounts of cash distributions that a limited partner might waive with respect to a Portfolio I or Portfolio II unit. On          , 2007, the last reported sale price of Class A Common Stock on the NYSE was $     . The number of Common OP Units actually issuable with respect to a particular amount of cash waived may differ from the numbers set forth in the table below.

NUMBER OF COMMON OP UNITS
ISSUED FOR WAIVED CASH AMOUNTS
AT ASSUMED CLASS A COMMON STOCK PRICES

Assumed Class
A Common
Stock Prices	Potential Waived Cash Amounts
	$	13,000	$	16,000	$	19,000	$	22,000	$	25,000
$35.00		371.4286		457.1429		542.8571		628.5714		714.2857
$40.00		325		400		475		550		625
$45.00		288.8889		355.5556		422.2222		488.8889		555.5556
$50.00		260		320		380		440		500
$55.00		236.3636		290.9091		345.4545		400		454.5455
$60.00		216.6667		266.6667		316.6667		366.6667		416.6667

Estimated Tax Consequences

Refinancing.  In general, repayment of the senior debt at the agreed valuation amount, rather than at the applicable face amount, would result in cancellation of indebtedness (“COD”) income allocable to limited partners. COD income is generally taxable as ordinary income, and increases the tax basis of the partner in its partnership interest. However, the COD income should be offset, in part, by deductible interest expense, which reduces the partner’s tax basis in its partnership interest.

It is estimated that the COD income, after taking into account the offsetting interest expense, will be $11,847 per unit of Portfolio I and $11,818 per unit of Portfolio II.

Assuming the limited partners do not object to the Transactions, it is anticipated that a portion of the refinancing proceeds will be distributed to the limited partners, and that such distribution would be at least sufficient to enable the limited partners to pay any tax due on COD income allocated to them.

A partner’s basis in its partnership interest is also affected by any net increase or decrease in allocations of any new debt to such partner as compared with the amounts of repaid liabilities that had been allocated to such partner. An increased share of partnership liabilities increases a partner’s basis in its partnership interest. A decreased share of partnership liabilities is treated as a cash distribution that decreases a partner’s basis in its partnership interest. An actual distribution of refinancing proceeds to a partner will be applied against any basis the partner has in its partnership interest, but, to the extent the proceeds are in excess of such basis, will be taxable gain.

13

Unaffiliated Sales.  In connection with the Unaffiliated Sales, the Partnerships and the limited partners will recognize taxable gain. The Unaffiliated Sales will generate taxable gain to the Partnerships, which will be allocated to all of the partners of the Partnerships, including the limited partners. Accordingly, partners will recognize gain in the Unaffiliated Sales as a result. The resulting tax liabilities are expected to exceed the cash distribution.

Assuming a purchase price (including assumed liabilities) of $59,636,000, and basis of the properties as of September 30, 2006, the Managing General Partner estimates that the unrecaptured section 1250 gain per unit will be $42,506 per unit of Portfolio I and $42,385 per unit of Portfolio II. When viewing the Unaffiliated Sales on a stand alone basis, the unrecaptured section 1250 gain per unit will be limited to the estimated gain on the sales of $38,502 per Portfolio I nondefaulted unit and $38,389 per Portfolio II nondefaulted unit. It is not expected that there will be any additional taxable gain per unit beyond the unrecaptured section 1250 gain.

Tax consequences to particular limited partners may vary depending on the effect of: (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or revalued by the Partnerships or VMS.

These calculations are estimates based upon information currently available to the Managing General Partner. The amounts to be allocated to the partners may vary depending on the reserves established to satisfy future obligations, if any, actual transaction costs, and factors beyond the control of the Managing General Partner. Each limited partner should consult his or her tax advisor regarding the tax consequences to him or her. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS” for additional information.

Affiliated Contribution.  To the extent that any limited partners receive cash with respect to the Affiliated Contribution, VMS will receive cash from Aimco Properties, LLC, and as a result will recognize taxable income. On the other hand, to the extent that limited partners elect to receive Common OP Units, VMS is not expected to recognize taxable income. Taxable income recognized by VMS will pass through to the Partnerships, and from the Partnerships to the partners, and therefore will be taxable to the partners, including limited partners who elect to receive Common OP Units. Thus the amount of taxable income recognized by a limited partner who elects to receive Common OP Units will depend, in part, on the extent to which other limited partners receive cash or Common OP Units in connection with the Affiliated Contribution.

The amounts to be allocated to the partners may vary depending on transaction costs and factors beyond the control of the Managing General Partner. Additionally, tax consequences to particular limited partners may vary depending on the effect of (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or received by the Partnerships or VMS.

The total amount of net taxable gain recognized by a limited partner who receives cash is not expected to vary depending on the extent to which other limited partners receive cash or Common OP Units, although the character of such gain may vary. The Managing General Partner estimates that, with respect to units that receive cash, the total taxable gain per unit will be $177,215 per unit of Portfolio I and $175,153 per unit of Portfolio II. Of that amount, the unrecaptured 1250 gain per unit is estimated to be $75,540 per unit of Portfolio I and $75,218 per unit of Portfolio II. Units that receive cash generally should expect to recognize the same amount of taxable gain regardless of the percentage of other units that elect to receive Common OP Units.

With respect to limited partners that elect to receive Common OP Units, the number of Common OP Units to be issued will be fixed at the time the Affiliated Contribution is consummated, and the market value of the Class A Common Stock will likely fluctuate between that date and the date of any distribution of Common OP Units to limited partners. Each limited partner should consult his or her tax advisor regarding the tax consequences to him or her. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS” for additional information.

14

The following table is a summary of the estimated allocation to the limited partners of taxable gain from the Affiliated Contribution, assuming that the Transaction was completed September 30, 2006. No position is taken as to the character of such gain as capital gain or ordinary income. These calculations are estimates based upon information currently available to the Managing General Partner. The amount of estimated non-resident withholding tax decreases to the extent limited partners elect to receive Common OP Units as consideration.

ESTIMATED GAIN FROM AFFILIATED CONTRIBUTION
PER UNIT RECEIVING COMMON OP UNITS

Cash Percentage	Gain per Unit	Portfolio I		Portfolio II
25% Cash	Total Gain	$	49,111	$	48,720
	Unrecaptured 1250 Gain		44,283		44,354
50% Cash	Total Gain		98,221		97,440
	Unrecaptured 1250 Gain		52,863		52,883
75% Cash	Total Gain		147,332		146,161
	Unrecaptured 1250 Gain		64,563		64,595

Estimated Distributions and Tax Consequences Combined.  The tables below summarize the estimated distributions and tax consequences to the limited partners of taxable gain from the refinancing and the Transactions, assuming that (i) the refinancing was completed on January 1, 2007, based upon information available to the Managing General Partner as of September 30, 2006, (ii) the Transactions were completed on September 30, 2006 and (iii) the indicated percentage of cash was received by the limited partners with respect to the Affiliated Contribution.

The first table below summarizes the estimated cash and taxable gain per unit receiving cash. The amount of state tax withholding will vary depending on the percentage of limited partners that elect to receive Common OP Units, and this variation may affect the amount of the cash distributions. However, such variation is not expected to be material. The second table summarizes the estimated taxable gain per unit receiving Common OP Units rather than cash. As noted above, the amount of taxable income recognized by a limited partner who elects to receive Common OP Units will depend, in part, on the extent to which other limited partners receive cash or Common OP Units in connection with the Affiliated Contribution.

ESTIMATED CASH AND GAIN
PER UNIT RECEIVING CASH

	Portfolio I		Portfolio II
Total gain per unit receiving cash	$	227,563	$	225,359
Unrecaptured 1250 gain per unit receiving cash		118,046		117,603
Cash distribution per unit		50,938		50,578

ESTIMATED GAIN
PER UNIT RECEIVING COMMON OP UNITS

Cash Percentage	Gain per Unit	Portfolio I		Portfolio II
25% Cash	Total Gain	$	99,459	$	98,927
	Unrecaptured 1250 Gain		86,730		86,876
50% Cash	Total Gain		148,569		147,647
	Unrecaptured 1250 Gain		91,367		91,444
75% Cash	Total Gain		197,680		196,368
	Unrecaptured 1250 Gain		104,186		104,263

Special Considerations for Defaulted Units

The estimated distributions and tax consequences described above relate to units of each Partnership that are not in default under the applicable partnership agreement (“nondefaulted units”). The Managing General Partner has determined, however, that roughly 5% of the units of each Partnership are in default (“defaulted units”). The Managing General Partner does not expect that any distribution of cash will be made with respect to defaulted units.

15

However, the holders of defaulted units generally will recognize taxable gain. The Managing General Partner estimates that, with respect to defaulted units, the total taxable gain per unit will be $72,514 per unit of Portfolio I and $72,544 per unit of Portfolio II. Of that amount, the unrecaptured 1250 gain per unit is estimated to be $45,624 per unit of Portfolio I and $47,000 per unit of Portfolio II. The Partnerships will be required to withhold state tax with respect to defaulted units, and such withheld tax should be creditable against the tax liability of that partner in the jurisdiction. Limited partners are urged to consult their tax advisors.

Alternatives Considered

The following is a brief discussion of the benefits and disadvantages of the alternatives to the Transactions considered by VMS, the Partnerships, the Managing General Partner, AIMCO/IPT, Inc. (“AIMCO/IPT”), Aimco Properties, LLC, the Aimco Operating Partnership, AIMCO-GP, Inc. (“AIMCO-GP”) and Aimco (collectively, the “VMS Related Parties”) that could have been pursued by the Managing General Partner.

Continue to Hold All VMS Properties

Benefits of Continuing to Hold All VMS Properties.  There are several potential benefits associated with retaining the Properties for the foreseeable future. Under certain circumstances, including a refinancing of the existing VMS debt, as is being sought by the Managing General Partner, and improving rental market conditions, the level of distributions from the Properties might increase over time. Additionally, any refinancing of the existing VMS debt, including the refinancing described herein, could result in improved cash flow in the future, which could result in increased distributions in the future. It is also possible that the resale market for apartment properties could improve over time and the disposition of the Properties at some point in the future could result in greater consideration. VMS’s continuing to hold the Properties would allow you to continue to participate in any net income from the Properties and any net proceeds from the future sale of the Properties.

Disadvantages of Continuing to Hold All VMS Properties.  There are several risks and disadvantages associated with retaining the Properties for the foreseeable future. Based on the estimates of the Managing General Partner, the Properties need substantial capital expenditures to be attractive to tenants. Without these expenditures, the condition of the Properties (and their expected rental income) is expected to deteriorate. Due to the terms of the current mortgage indebtedness encumbering the Properties, including prohibitions on repayment prior to January 1, 2007, refinancing any of the Properties prior to that date would have required the consent of the holders of that indebtedness. Although a refinancing of the existing mortgage indebtedness after January 1, 2007 can be completed without such consents, the Managing General Partner believes that such refinancing would not generate sufficient cash to satisfy the required capital expenditures and operating requirements of the Properties. The failure of the refinancing to satisfy such capital expenditure and operating requirements ultimately led the Managing General Partner to reject the option to hold the Properties for the foreseeable future.

In addition, you are likely to continue to receive allocations of taxable income from the Partnerships without any corresponding distributions. Unless you have losses from passive investments (including VMS) or other tax attributes to offset such taxable income, you may be required to pay taxes in respect of such income without any corresponding receipt of cash. This situation has arisen primarily because of the declining depreciation deductions of the Properties in which the Partnerships have invested through VMS. All of the cash flow is currently dedicated to the payment of operating expenses, capital expenditures and debt service.

Sale of all the Properties to Third-Party Purchasers

Benefits of Selling All of the Properties to Third Parties.  As an alternative to contributing some of the Properties to Aimco Properties, LLC, the VMS Related Parties considered selling all the Properties to third parties. A sale to a third party would not have the conflicts of interest that are inherent in a transaction with an affiliate. The terms of such a transaction would be negotiated at arms length, which could result in greater consideration to VMS. The limited partners would benefit from this alternative by receiving a cash distribution from the net proceeds of the sale and from no longer continuing to recognize taxable income on their limited partnership interests after the liquidation and distribution.

Disadvantages of Selling All of the Properties to Third Parties.  A sale of all of the Properties for cash would likely result in greater immediate taxable gain for the limited partners who elect to receive Common OP Units rather than cash with respect to the Affiliated Contribution. The market for the Properties is uncertain, and thus it is

16

possible that a sale of all the Properties to third parties could result in prices lower than the value of the consideration offered in the Affiliated Contribution. There would be increased costs associated with marketing and selling fifteen rather than eight Properties to third parties. The Partnerships would incur some costs they would not incur in a contribution to Aimco Properties, LLC such as brokerage fees and fees associated with the full negotiation of purchase agreements with third parties, which the Managing General Partner expects would total approximately $3,000,000 and which would reduce the net sale proceeds to the Partnerships. Similarly, a sale of the Properties to third parties would likely result in less speed and certainty of closing the transactions as compared to a quicker and more certain closing of a contribution to Aimco Properties, LLC. Each of the above factors led the Managing General Partner to ultimately reject the option of selling all the Properties to third parties.

Other Possible Transactions

The VMS Related Parties considered other potential transactions, such as selling all the Properties to Aimco Properties, LLC or a merger of VMS with another entity. The costs of marketing and selling to third parties, such as brokerage fees, would be reduced or eliminated and closing of sales to Aimco Properties, LLC would likely be quicker and more certain than sales to unaffiliated third parties. Given the geographical locations of the Properties, the existence of a suitable merger partner is uncertain, and thus it is possible that a merger could result in prices lower than the value of the consideration that could be obtained through a transaction with Aimco Properties, LLC. Considerable obstacles to these transactions existed however, such as Aimco Properties, LLC’s lack of interest in all of the Properties and the necessity, and potential cost, of identifying a merger partner interested in all of the Properties. Additionally, in light of the large number of holders of limited partnership interests in the Partnerships, the Managing General Partner believes that the unanimous approval of a merger required by Illinois law was unlikely. As a result, these transactions were eliminated from consideration.

Expected Benefits of the Transactions

The VMS Related Parties believe that the Transactions have the following principal advantages to the unaffiliated limited partners:

•  Potential Tax Deferral.  Limited partners that elect to receive Common OP Units as consideration may be entitled to defer a portion of their taxable gain.

•  Realization of Return on Investment.  The tax benefits of continued investment in the Properties have been substantially eliminated for most limited partners due principally to declining depreciation deductions from the Properties. The Unaffiliated Sales would allow partners to realize return on their investment through immediate cash distribution to the partners from the sale proceeds. The Affiliated Contribution would give partners the choice to realize return on their investment through immediate cash distribution or to receive Common OP Units as consideration.

•  Allows VMS to Avoid Risk of Default and Foreclosure.  In connection with the VMS plan of reorganization approved in September 1993, the Properties were encumbered with the mortgage indebtedness described elsewhere in this proxy statement-prospectus. Such mortgage indebtedness matures on January 1, 2008 and may not be prepaid prior to January 1, 2007. Even after completion of the refinancing, if a disposition of the Properties is not consummated, there will be an increased risk that VMS will not be able to repay some of its debt or fund necessary deficits, capital expenditures, or other costs, and therefore an increased risk that VMS will default upon its indebtedness in the future, and perhaps lose its Properties in the future through mortgage foreclosure.

•  No More Tax Allocations Without Distributions.  Without the completion of the Transactions and a refinancing of the existing debt on more favorable terms, at existing rent levels at the Properties, the Partnerships may generate taxable income but will probably not distribute sufficient cash to limited partners to pay resulting tax liabilities for the foreseeable future.

•  Elimination of Management Fees.  Affiliates of Aimco are contractually entitled to receive annual compensation for real estate advisory services and asset management services of $300,000, adjusted annually by the consumer price index, reimbursement of expenses not to exceed $100,000 per year and 4% of the gross receipts from all of the Properties as compensation for providing property management fees. Asset management fees of approximately $257,000, $351,000, $323,000 and $325,000 were charged by

17

affiliates of the Managing General Partner for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, respectively. VMS paid, or accrued for payment, property management fees to such affiliates of approximately $1,024,000, $1,278,000, $1,201,000 and $1,253,000 for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003. See “VMS AND THE PARTNERSHIPS — VMS — Transactions with Affiliates.” Following the transfer of a Property in a Transaction, VMS, and indirectly, the limited partners, will no longer be required to bear the cost of these fees.

•  Disposition at Appraised Value.  The value of the consideration for each of the Affiliated Contribution Properties is equal to the greater of the appraised market value of the fee simple interest in such Properties based on appraisals dated November and December 2006 and internal valuations prepared annually by Aimco, and last updated February 2006. A sale of the Affiliated Contribution Properties to a third party could result in a lesser purchase price and/or could impose additional costs that do not exist in the Affiliated Contribution, which could lower the net proceeds to the Partnerships.

•  Growth Potential.  The Aimco Operating Partnership’s assets, organizational structure and access to capital enable it to pursue acquisition and development opportunities that are not available to VMS. Limited partners that elect to receive Common OP Units would have the opportunity to participate in the Aimco Operating Partnership’s enterprise and could benefit from any future increase in the Class A Common Stock price and from any future increase in distributions on the Common OP Units.

•  Diversification.  The Aimco Operating Partnership’s portfolio of apartment properties is substantially larger and more diverse than the portfolio of properties that VMS proposes to contribute in the Affiliated Contribution. This exchange would therefore substantially diversify the portfolio of any limited partner that elected to receive Common OP Units as consideration for the Affiliated Contribution.

•  Elimination of Costs Associated with SEC Filing Requirements.  There are various costs associated with being a public reporting company, including costs associated with preparing, auditing and filing periodic reports with the SEC, which would be eliminated if VMS were to terminate its registration under the Exchange Act. The Managing General Partner estimates these expenses to be approximately $87,000 per year. This represents approximately 13% of VMS’s general and administrative expenses and 0.20% of its total expenses (based on 2005 expenses of approximately $686,000 and $42,508,000, respectively). In addition, as a result of the Sarbanes-Oxley Act of 2002, the Managing General Partner estimates VMS’s costs will increase by approximately 10% beginning in 2007.

•  Disposition of Unaffiliated Sales Properties Pursuant to Arms-Length Marketing Process.  The Unaffiliated Sales Properties were marketed to unaffiliated third parties and the purchase price for the Unaffiliated Sales was attained through arms-length negotiation, at a purchase price in excess of the Minimum Unaffiliated Sales Price.

The VMS Related Parties believe that the Transactions have the following principal advantages to VMS and the Partnerships:

•  Allows VMS to Avoid Risk of Default and Foreclosure.  In connection with the VMS plan of reorganization approved in September 1993, the Properties were encumbered with the mortgage indebtedness described elsewhere in this proxy statement-prospectus. Such mortgage indebtedness matures on January 1, 2008 and may not be prepaid prior to January 1, 2007. Even after completion of the refinancing, if a disposition of the Properties is not consummated, there will be an increased risk that VMS will not be able to repay some of its debt or fund necessary deficits, capital expenditures, or other costs, and therefore an increased risk that VMS will default upon its indebtedness in the future, and perhaps lose its Properties in the future through mortgage foreclosure.

•  Elimination of Management Fees.  Affiliates of Aimco are contractually entitled to receive annual compensation for real estate advisory services and asset management services of $300,000, adjusted annually by the consumer price index, reimbursement of expenses not to exceed $100,000 per year and 4% of the gross receipts from all of the Properties as compensation for providing property management fees. Asset management fees of approximately $257,000, $351,000, $323,000 and $325,000 were charged by

18

affiliates of the Managing General Partner for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, respectively. VMS paid, or accrued for payment, property management fees to such affiliates of approximately $1,024,000, $1,278,000, $1,201,000 and $1,253,000 for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003. See “VMS AND THE PARTNERSHIPS — VMS — Transactions with Affiliates.” Following the transfer of a Property in a Transaction, VMS, and indirectly, the limited partners, will no longer be required to bear the cost of these fees.

•  Disposition at Appraised Value.  The value of the consideration for each of the Affiliated Contribution Properties is equal to the greater of the appraised market value of the fee simple interest in such Properties based on appraisals dated November and December 2006 and internal valuations prepared annually by Aimco, and last updated February 2006. A sale of the Affiliated Contribution Properties to a third party could result in a lesser purchase price and/or could impose additional costs that do not exist in the Affiliated Contribution, which could lower the net proceeds to the Partnerships.

•  Disposition of Unaffiliated Sales Properties Pursuant to Arms-Length Marketing Process.  The Unaffiliated Sales Properties were marketed to unaffiliated third parties and the purchase price for the Unaffiliated Sales was attained through arms-length negotiation, at a purchase price in excess of the Minimum Unaffiliated Sales Price.

The VMS Related Parties believe that the Transactions have the following principal advantages to the Managing General Partner:

•  Allows VMS to Avoid Risk of Default and Foreclosure.  In connection with the VMS plan of reorganization approved in September 1993, the Properties were encumbered with the mortgage indebtedness described elsewhere in this proxy statement-prospectus. Such mortgage indebtedness matures on January 1, 2008 and may not be prepaid prior to January 1, 2007. Even after completion of the refinancing, if a disposition of the Properties is not consummated, there will be an increased risk that VMS will not be able to repay some of its debt or fund necessary deficits, capital expenditures, or other costs, and therefore an increased risk that VMS will default upon its indebtedness in the future, and perhaps lose its Properties in the future through mortgage foreclosure.

•  Elimination of Ultimate Liability as General Partner.  As the managing general partner of the Partnerships, the Managing General Partner is ultimately responsible for liabilities incurred by the Partnerships, to the extent any such liability is not a non-recourse loan and a claimant may pursue claims and any security pledged as collateral for any such liability. Upon completion of the Transactions, the Partnerships will be dissolved pursuant to their respective partnership agreements and the Managing General Partner’s liability with respect to the Partnerships will cease to exist.

•  Benefits as an Affiliate of Aimco.  As an affiliate of Aimco, the Managing General Partner will receive the indirect benefits of the Transactions that are received by Aimco and its other affiliates.

•  Disposition at Appraised Value.  The value of the consideration for each of the Affiliated Contribution Properties is equal to the greater of the appraised market value of the fee simple interest in such Properties based on appraisals dated November and December 2006 and internal valuations prepared annually by Aimco, and last updated February 2006. A sale of the Affiliated Contribution Properties to a third party could result in a lesser purchase price and/or could impose additional costs that do not exist in the Affiliated Contribution, which could lower the net proceeds to the Partnerships.

The VMS Related Parties believe that the Transactions have the following principal advantages to AIMCO/IPT:

•  Benefit as an Affiliate of Aimco.  As a shareholder of the Managing General Partner and an affiliate of Aimco, AIMCO/IPT will indirectly receive benefits of the Transactions that are received by the Managing General Partner and Aimco.

19

The VMS Related Parties believe that the Transactions have the following principal advantages to the Aimco Operating Partnership, in addition to the benefits the Aimco Operating Partnership, as a limited partner, will share with the unaffiliated limited partners as described above:

•  Future Appreciation of the Properties.  The Aimco Operating Partnership will receive the benefit of any future appreciation of the Affiliated Contribution Properties that will be held by Aimco Properties, LLC, its wholly owned subsidiary, after consummation of the Affiliated Contribution.

•  Sales Proceeds from Unaffiliated Sales.  The Aimco Operating Partnership will receive its proportional share of proceeds from the consummation of the Unaffiliated Sales.

•  Opportunity to Acquire Assets Without Cash.  To the extent that the limited partners elect to receive OP Units rather than cash pursuant to the Affiliated Contribution, the Aimco Operating Partnership will acquire the Affiliated Contribution Properties without the payment of cash as compensation.

•  Increased Operating Flexibility.  Following the completion of the Affiliated Contribution, the Affiliated Contribution Properties will be wholly-owned by the Aimco Operating Partnership, which will permit greater flexibility in operating and financing the Affiliated Contribution Properties than currently is possible under the existing ownership structure.

The interests of Aimco GP, Inc., Aimco Properties, LLC and Aimco are generally aligned with those of the Aimco Operating Partnership. Therefore, the benefits of the Aimco Operating Partnership, described above, are shared by Aimco GP, Inc., Aimco Properties, LLC and Aimco.

Expected Detriments of the Transaction

The VMS Related Parties believe that the Transactions have the following principal detriments to the unaffiliated limited partners:

•  No Separate Representation of Limited Partners in the Affiliated Contribution.  The Managing General Partner is an affiliate of Aimco Properties, LLC. In structuring the Affiliated Contribution and the consideration, no one separately represented the interests of the limited partners and the amount of consideration and the terms of the Affiliated Contribution were determined without an arms-length negotiation. Although the Managing General Partner has a fiduciary duty to the limited partners, it also has responsibilities to its equity holders that could conflict with the interests of the limited partners. The Managing General Partner did not appoint, nor did Aimco Properties, LLC ask it to appoint, a party to represent only the interests of the limited partners. The terms of the Affiliated Contribution, including the value of the consideration, could differ if they were subject to independent negotiations.

•  Taxable Gain to the Limited Partners.  The Unaffiliated Sales will be considered taxable under United States federal tax laws and will result in taxable gain to the limited partners. Also, to the extent that any limited partners receive cash with respect to the Affiliated Contribution, VMS will receive cash from Aimco Properties, LLC, which will result in taxable income to the limited partners, including the limited partners who receive Common OP Units in the Affiliated Contribution. In addition, tax consequences to particular limited partners may vary depending on the effect of: (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or revalued by the Partnerships or VMS. Limited partners are urged to consult their tax advisors as to their particular situations and tax consequences.

•  Uncertain Future Value of Common OP Units and Distributions.  In the Affiliated Contribution, limited partners have the option to receive Common OP Units as consideration. Each Common OP Unit is redeemable, at the option of its holder, after a one-year holding period, for one share of Class A Common Stock or cash equal to the market value of one share of Class A Common Stock at the time of redemption, as the Aimco Operating Partnership may elect. For a detailed description of these redemption rights, see “DESCRIPTION OF COMMON OP UNITS — Redemption Rights of Qualifying Partners.” The number of Common OP Units to be issued to those that elected to waive any portion of the cash distribution and receive Common OP Units instead will be equal to (i) the amount of the cash distribution waived by such limited

20

partner divided by (ii) the average daily closing price of a share of Class A Common Stock on the NYSE over the twenty trading-day period ended two days prior to consummation of the Affiliated Contribution. On          , 2007, the last reported sale price of Class A Common Stock on the NYSE was $     . During the period          , 2007 to          , 2007, the high and low sales prices of the Class A Common Stock on the NYSE were $     and $     , respectively. Limited partners are instructed to contact The Altman Group, Inc. with any direct questions or requests for information, including an estimate of Common OP Units issuable with respect to waivers of particular cash amounts, as of the most recent practicable date. Please see the information set forth under “HOW TO OBTAIN ADDITIONAL INFORMATION.” The market price of Class A Common Stock varies from time to time. These variations may be caused by a number of factors, including changes in Aimco’s business, operations or prospects, regulatory considerations and general market and economic considerations. The number of Common OP Units will not be adjusted for any change in the market price of Class A Common Stock. Accordingly, if the market value of Class A Common stock and, correspondingly, Common OP Units declines prior to the time the Affiliated Contribution is consummated, the value of the consideration to be received will decline. In addition, because the date that the Affiliated Contribution is completed will be later than the date prior to which limited partners may object to it, limited partners will not know the exact value of the Common OP Units that will be issued in the Affiliated Contribution at the time they determine what form of consideration to elect. In addition, although the Aimco Operating Partnership makes quarterly distributions on its Common OP Units, there can be no assurance regarding the amounts of available cash that the Aimco Operating Partnership will generate or the portion that its general partner will choose to distribute. The following table presents the distributions declared and made by the Aimco Operating Partnership on its Common OP Units from with respect to the specified periods:

Quarter Ended	Distributions per Unit
December 31, 2001	$	0.82
March 31, 2002	$	0.82
June 30, 2002	$	0.82
September 30, 2002	$	0.82
December 31, 2002	$	0.82
March 31, 2003	$	0.82
June 30, 2003	$	0.82
September 30, 2003	$	0.60
December 31, 2003	$	0.60
March 31, 2004	$	0.60
June 30, 2004	$	0.60
September 30, 2004	$	0.60
December 31, 2004	$	0.60
March 31, 2005	$	0.60
June 30, 2005	$	0.60
September 30, 2005	$	0.60
December 31, 2005	$	0.60
March 31, 2006	$	0.60
June 30, 2006	$	0.60
September 30, 2006	$	0.60

•  No Participation in Possible Increase in Value of Sold Properties.  The Properties may generate increased net income or cash flow or increase in value after their disposition. Because VMS will no longer own the Properties after completion of the Transactions, limited partners will not be able to participate in the net income or cash flow from the Properties or any net proceeds from the future sale of the Properties, although limited partners who elect to receive Common OP Units in lieu of cash will continue to participate indirectly with respect to the Affiliated Contribution Properties.

21

The VMS Related Parties believe that the Transactions have the following principal detriments to VMS and the Partnerships:

•  No Separate Representation of Limited Partners in the Affiliated Contribution.  The Managing General Partner is an affiliate of Aimco Properties, LLC. In structuring the Affiliated Contribution and the consideration, no one separately represented the interests of the limited partners and the amount of consideration and the terms of the Affiliated Contribution were determined without an arms-length negotiation. Although the Managing General Partner has a fiduciary duty to the limited partners, it also has responsibilities to its equity holders that could conflict with the interests of the limited partners. The Managing General Partner did not appoint, nor did Aimco Properties, LLC ask it to appoint, a party to represent only the interests of the limited partners. The terms of the Affiliated Contribution, including the value of the consideration, could differ if they were subject to independent negotiations.

•  VMS and the Partnerships will be dissolved and will cease to exist.  Because the Properties are the sole assets of VMS, and the interests of VMS are the sole assets of the Partnerships, upon completion of the Transactions the Partnerships and VMS will be dissolved in accordance with the terms of their respective partnership agreements.

The VMS Related Parties believe that the Transactions have the following principal detriments to the Managing General Partner:

•  Loss of Ownership Interest in the Properties.  Upon completion of the Transactions, the Managing General Partner will no longer hold an ownership interest in the Properties.

•  Discontinued Receipt of Management Fees.  After consummation of the Transactions, the Managing General Partner will no longer receive asset management fees and potential future fees from VMS.

The VMS Related Parties believe that the Transactions have the following principal detriments to AIMCO/IPT:

•  Loss of Distributions from the Managing General Partner.  As a shareholder of the Managing General Partner, AIMCO/IPT received distributions in connection with VMS which will no longer be paid after consummation of the Transactions. Since January 1, 2005, such distributions to AIMCO/IPT totaled $     .

The VMS Related Parties believe that the Transactions have the following principal detriments to the Aimco Operating Partnership:

•  Responsible for All Future Losses.  As the sole member of Aimco Properties, LLC, the Aimco Operating Partnership will be responsible for all future losses or decreases in value of the Affiliated Contribution Properties.

•  Discontinued Receipt of Management Fees.  After consummation of the Transactions, the Aimco Operating Partnership will no longer indirectly receive asset management fees and potential future fees from VMS.

•  Property Management Fees.  After consummation of the Transactions, an affiliate of the Aimco Operating Partnership will continue to receive a property management fee, but such fee will be borne completely by the Aimco Operating Partnership and will no longer be shared with the limited partners.

•  Reimbursement for Services.  After consummation of the Transactions, affiliates of the Aimco Operating Partnership will not be reimbursed for services provided on behalf of the Aimco Operating Partnership, including administrative and bookkeeping expenses, as well as construction management expenses.

The interests of Aimco GP, Inc., Aimco Properties, LLC and Aimco are generally aligned with those of the Aimco Operating Partnership. Therefore, the detriments of the Aimco Operating Partnership, described above, are shared by AIMCO GP, Inc., Aimco Properties, LLC and Aimco.

22

In addition to the benefits and detriments for each VMS Related Party described above, the following summarizes the accounting treatment in connection with the Transactions:

•  Accounting by Aimco and the Aimco Operating Partnership.  Effective January 1, 2006, Aimco and the Aimco Operating Partnership account for VMS and the Partnerships as consolidated subsidiaries. Accordingly, the assets, liabilities, revenues and expenses of VMS and the Partnerships are reported in the consolidated financial statements of Aimco and the Aimco Operating Partnership. The carrying amounts of the Properties as reported in such consolidated financial statements differ from the corresponding amounts reported in the combined financial statements of the Partnerships due to certain valuation adjustments that were recorded by the Managing General Partner and the Aimco Operating Partnership in connection with their acquisitions of equity interests in the Partnerships in prior years. Units of the Partnerships held by limited partners other than the Aimco Operating Partnership are reported as minority interest in the consolidated financial statements of Aimco and the Aimco Operating Partnership; however the carrying amount of the minority interest is zero and Aimco does not allocate any losses of VMS and the Partnerships to the minority interest.

Aimco and the Aimco Operating Partnership will account for the Affiliated Contribution as an acquisition of a noncontrolling interest in a subsidiary in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. This accounting treatment will result in increases in the carrying amounts of the Affiliated Contribution Properties by an aggregate amount equal to (i) the aggregate amount of cash and fair value of Common OP Units received by VMS and the limited partners in exchange for the Affiliated Contribution Properties, multiplied by (ii) the aggregate percentage interest in the Partnerships held by limited partners other than the Aimco Operating Partnership. The Aimco Operating Partnership will record corresponding increases in partners’ capital and minority interest in consolidated real estate partnerships based on the relative proportions of the total consideration for the Affiliated Contribution Properties comprised by Common OP Units and cash, respectively. Aimco’s accounting for the Affiliated Contribution will be identical to the accounting applied by the Aimco Operating Partnership, except that the increase in partners’ capital described in the preceding sentence will be reported by Aimco as an increase in minority interest in Aimco Operating Partnership. No gain or loss will be recognized by Aimco or the Aimco Operating Partnership in connection with the Affiliated Contribution.

The Unaffiliated Sales are expected to be accounted for as real estate sales using the full accrual method in accordance with statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate.  Accordingly, upon completion of the Unaffiliated Sales, which may occur on a property-by-property basis, Aimco and the Aimco Operating Partnership will no longer report the carrying amounts of the Unaffiliated Sale Properties in their consolidated financial statements and will recognize gain or loss for the difference between such carrying amounts and the related net sales proceeds. Based on the current carrying amounts and estimated fair values of the Unaffiliated Sale Properties, Aimco and the Aimco Operating Partnership expect to recognize a net gain upon completion of the Unaffiliated Sales.

The Affiliated Contribution, together with the repayment or assumption of related debt and the distribution of any cash proceeds received in the Transaction, will result in a decrease in the partners’ deficit of VMS equal to the deficit attributable to the Affiliated Contribution Properties and related debt. Based on net book values of the Affiliated Contribution Properties and related debt balances as of September 30, 2006, the Affiliated Contribution and related transactions will result in a decrease of approximately $129,914,425 in the partners’ deficit of VMS. The amount of the decrease attributable to Aimco and the Aimco Operating Partnership, based on their equity ownership of 22.05% in VMS, is approximately $28,648,661. The Affiliated Contribution will result in a decrease in the net loss of VMS equal to the aggregate net loss of the Affiliated Contribution Properties. Based on the net losses of VMS and the Affiliated Contribution Properties for the nine months ended September 30, 2006, the Affiliated Contribution and related transactions will result in a decrease of $10,546,302 in the net loss of VMS. The estimated amount attributable to Aimco and the Aimco Operating Partnership, based on their equity ownership of 22.05% in VMS, is a decrease of approximately $2,325,665 for the nine months ended September 30, 2006.

•  Accounting by the Partnerships.  For accounting purposes, VMS, the Partnerships and Aimco Properties, LLC are deemed to be entities under common control. Generally accepted accounting principles ordinarily

23

preclude recognition of gains by the transferor entity in a transfer of assets between entities under common control. Accordingly, the Partnerships will not recognize any gain in connection with the transfer of the Affiliated Contribution Properties from VMS to Aimco Properties, LLC. The excess of (i) the aggregate amount of cash and fair value of Common OP Units received by VMS and the limited partners in exchange for the Affiliated Contribution Properties over (ii) the Partnerships’ aggregate carrying amount of the Affiliated Contribution Properties will be treated by the Partnerships as capital contributions from the Aimco Operating Partnership and be credited to partners’ deficit in the Partnerships’ combined financial statements. An offsetting charge to partners’ deficit will be recognized for the fair value of Common OP Units distributed to limited partners.

The Partnerships will account for the Unaffiliated Sales as sales of real estate and recognize a net gain upon completion of the sales, as described above for Aimco and Aimco Operating Partnership. The amount of the net gain recognized by the Partnerships will differ from the amount recognized by Aimco and the Aimco Operating Partnership due to certain valuation adjustments recorded by the Managing General Partner and the Aimco Operating Partnership in connection with their acquisitions of equity interests in the Partnerships in prior years.

FAIRNESS OF THE TRANSACTIONS

The VMS Related Parties believe that each Transaction is fair to VMS, the Partnerships and all unaffiliated limited partners of the Partnerships.

Affiliated Contribution

In evaluating the fairness of the Affiliated Contribution, the VMS Related Parties considered the following factors and information:

•  The fact that limited partners electing to receive Common OP Units may be able to achieve more favorable tax results than would be the case upon receipt of the cash distribution to which such limited partner would otherwise be entitled, as further described in “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

•  The fact that limited partners can elect to waive any portion of the cash distribution to be received in connection with the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead, thereby providing limited partners the potential for more favorable tax results arising from the receipt of Common OP Units.

•  The fact that the Managing General Partner has significant conflicts of interest with respect to the Affiliated Contribution resulting from the fiduciary duties it owes to its sole stockholder, whose affiliate has an interest in obtaining the lowest price possible for the Affiliated Contribution Properties, and the fiduciary duties it owes to the limited partners of the Partnerships, which have an interest in maximizing the consideration to be received for the Affiliated Contribution Properties.

•  The appraisals provided by KTR, which are described in detail under “DETERMINATION OF CONSIDERATION BASED ON INDEPENDENT APPRAISALS,” the Aimco internal valuations of the Affiliated Contribution Properties, and the consideration to be received by VMS and the limited partners for the Affiliated Contribution in cash and/or Common OP Units equal to approximately $230,078,260, which is equal to the greater of the appraised market value of the fee simple interest in the Affiliated Contribution Properties and the internal valuations prepared by Aimco. The Aimco internal valuation for Casa De Monterey is $17,369,746, whereas the appraised market value is $18,200,000. The Aimco internal valuation for Buena Vista Apartments is $19,028,260, whereas the appraised market value is $17,900,000. The Aimco internal valuation for Mountain View Apartments is $28,482,135, whereas the appraised market value is $30,800,000. The Aimco internal valuation for Pathfinder Village Apartments is $32,036,484, whereas the appraised market value is $34,700,000. The Aimco internal valuation for Scotchollow Apartments is $64,502,581, whereas the appraised market value is $67,800,000. The Aimco internal valuation for Crosswood Park is $14,792,788, whereas the appraised market value is $15,750,000. The Aimco internal

24

valuation for Towers of Westchester Park is $35,557,852, whereas the appraised market value is $43,800,000. After receipt of KTR’s appraisals, the VMS Related parties considered the valuation approaches, methodologies and analyses described by KTR and determined that such valuation approaches, methodologies and analyses were appropriate in fairly valuing real estate assets such as the Affiliated Contribution Properties. Because the consideration for the Affiliated Contribution Properties was based on the greater of the appraised values for each of the Affiliated Contribution Properties and Aimco’s internal valuation for each such property, the VMS Related Parties then adopted the valuations established by the appraisals as the consideration for each Affiliated Contribution Property for which such appraised value exceeded Aimco’s internal valuation for such Property, resulting in a total consideration valued at approximately $230,078,260. The VMS Related Parties believe that the payment of the greater of the value determined by Aimco in connection with its annual financial reporting process and the value determined by an independent appraiser in the business of valuing properties like the Affiliated Contribution Properties increases the likelihood that the consideration is fair.

•  The fact that KTR has performed work for Aimco and its affiliates in the past and that this pre-existing relationship between KTR and Aimco could negatively impact KTR’s independence. As noted elsewhere in this proxy statement-prospectus, the VMS Related Parties believe that this relationship had no effect on the results of the appraisals.

•  The absence of an unaffiliated representative to act solely on behalf of the Partnerships or the limited partners in negotiating the terms of the Affiliated Contribution on an independent, arms-length basis, which might have resulted in greater consideration for the Affiliated Contribution Properties.

•  The lack of a requirement that the Affiliated Contribution be approved by a majority of the limited partners unaffiliated with the Managing General Partner or Aimco, resulting in the direct application of the provisions of the Partnership Agreements which, in light of the limited partnership interests held by Aimco and its affiliates, requires 63.7% of the unaffiliated limited partners to object in order to prevent the Affiliated Contribution from occurring, rather than a simple majority.

•  An evaluation of the market price of Class A Common Stock, which is traded on the New York Stock Exchange, as compared to the units of the Partnerships, which are not listed on any national securities exchange or quoted on the NASDAQ system, the Electronic Bulletin Board or the “Pink Sheets,” and therefore have no established public trading market for the units. For more information, see “VMS AND THE PARTNERSHIPS — Distributions and Transfers of Units.”

•  The fact that current quarterly distributions with respect to the Common OP Units are $0.60 per unit, that since 1993 the Partnerships have paid no distributions and that limited partners electing to waive cash and receive Common OP Units instead would be entitled to receive such distributions in the future.

•  Pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization.

Unaffiliated Sales

In evaluating the fairness of the Unaffiliated Sales, the VMS Related Parties considered the fact that the Unaffiliated Sale Properties were marketed to unaffiliated third parties and the purchase price for each Unaffiliated Sale Property was attained through arms-length negotiation. In addition, the VMS Related Parties considered the fact that the consideration received for the Unaffiliated Sales was $59,636,000. Based on these considerations, the VMS Related Parties determined that the Unaffiliated Sales are fair to VMS, the Partnerships and all unaffiliated limited partners of the Partnerships.

The Transactions

In addition to evaluating the Affiliated Contribution and the Unaffiliated Sales independently, the VMS Related Parties considered the following factors and information in determining that the Transactions, taken as a

25

whole, are fair to VMS, the Partnerships and all unaffiliated limited partners of the Partnerships, regardless of whether such limited partners receive cash or Common OP Units with respect to the Affiliated Contribution:

•  The fact that repayment of the senior mortgages encumbering the Properties prior to any default on or before the maturity date will result in greater proceeds to the limited partners than would otherwise be the case.

•  An analysis of the possible alternatives, including continuation without the proposed disposition of Properties, which included an evaluation of the condition and operating performance of the Properties and the need for substantial capital expenditures. Based on estimates made by the Managing General Partner, the Properties require approximately $32.1 million in capital expenditures, an amount significantly in excess of the net proceeds of the refinancing. The VMS Related Parties believe that the completion of the Transactions, in light of the available alternatives, creates more certain value for the limited partners and the potential for more favorable tax treatment than any of the available alternatives.

•  The fact that favorable loans from third parties or the Managing General Partner are not currently available to finance necessary capital expenditures and may not be available in the future or, when available, may not be on terms and conditions acceptable to the Managing General Partner or favorable to the Partnerships, which could result in increased stress on the operations of VMS as the Properties continue to deteriorate.

In evaluating these factors, except as set forth above or in the referenced sections of this proxy statement-prospectus, the VMS Related Parties did not quantify or otherwise attach particular weight to any of them. In similar transactions, the determination of fairness is sometimes evaluated based on other factors, such as current market prices of the units, net book value of the properties, going concern value of the Partnerships, liquidation value of the Partnerships and purchase price paid for units in previous purchases. The VMS Related Parties did not consider these factors in the evaluation of either of the Affiliated Contribution or the Unaffiliated Sales. The VMS Related Parties did not consider these factors in the evaluation of the Unaffiliated Sales because the Unaffiliated Sales were negotiated at arms-length with unaffiliated third parties following extensive marketing efforts.

With respect to the Affiliated Contribution, the VMS Related Parties did not consider secondary market sales information because they are of the opinion that secondary market sales information is not a reliable measure of value in light of the limited number of reported trades. The VMS Related Parties did not consider purchase prices paid in previous purchases because there were no previous purchases to consider. The VMS Related Parties are also of the opinion that independent appraisals, which account for a reasonable marketing period, are a more accurate indicator of value for real estate assets such as the Affiliated Contribution Properties than net book value, because accumulated depreciation with respect to the Affiliated Contribution Properties, together with the failure to account for depreciation, if any, in the market value of Properties, results in an understated valuation on a net book value basis. For example, the aggregate net book value of the Affiliated Contribution Properties is $32,011,000, as compared to the aggregate appraised value of $228,950,000 and the Affiliated Contribution consideration of $230,078,260. The VMS Related Parties are also of the opinion that the valuations for the Affiliated Contribution Properties set forth in the appraisals, based on a sales comparison analysis and a gross income multiplier analysis, are a reasonable approximation of the going concern and liquidation values for such Properties. In its sales comparison analysis, the appraiser considered sales of comparable properties in competitive markets and adjusted for differences in location and physical characteristics, which is analogous to a liquidation analysis in the context of a real estate asset. Likewise, in its gross income multiplier analysis, the appraiser valued the Affiliated Contribution Properties based on a review of the relationship between the sale price and the effective gross income of a Property, which is analogous to a going concern valuation in the context of a real estate asset.

Procedural Fairness.  Each of the parties to the Affiliated Contribution is aware that Aimco and its affiliates have interests in the Affiliated Contribution or have relationships that present conflicts of interest in connection with the Affiliated Contribution and considered these conflicts of interest along with the other factors enumerated above in making its determination. See “CONFLICTS OF INTEREST.” In light of the conflicts of interest with respect to the Affiliated Contribution, the VMS Related Parties took into account the absence of the following procedural safeguards: (1) an unaffiliated representative to act solely on behalf of the Partnerships or the unaffiliated limited partners in negotiating the terms of the Affiliated Contribution and (2) the approval of the Affiliated Contribution by a majority of the limited partners unaffiliated with the Managing General Partner or Aimco. The Aimco Operating Partnership is a partnership managed by the Managing General Partner rather than a board of directors. The

26

Managing General Partner is a corporation, the board of which is comprised entirely of affiliates of the VMS Related Parties. As a result, there were no unaffiliated parties available to act as, or to hire, an unaffiliated representative of the unaffiliated limited partners. The VMS Related Parties did not believe any of the procedural safeguards were necessary with respect to the Unaffiliated Sales because the Unaffiliated Sales were negotiated at arms-length with unaffiliated third parties following extensive marketing efforts. Despite the absence of these procedural safeguards, the VMS Related Parties are of the opinion that the Affiliated Contribution is procedurally fair to the unaffiliated limited partners because:

•  An appraisal of the Affiliated Contribution Properties was obtained from an independent third party appraiser. In each case, the consideration as of the closing date of the Affiliated Contribution for the Affiliated Contribution Properties is at least equal in value to the greater of the appraised value and the Aimco internal valuations. Aimco Properties, LLC has indicated that it would not have paid more for the Affiliated Contribution Properties than the greater of these two amounts, even if an unaffiliated representative had been engaged to represent the interests of the unaffiliated limited partners.

•  By providing the information required by Form S-4 and Schedules 13E-3 and 14A of the Exchange Act, the Managing General Partner has provided sufficient information to each limited partner to make its own decision with respect to objecting to or electing the form of consideration for the Affiliated Contribution.

•  The Affiliated Contribution will not be consummated if limited partners holding a majority of the aggregate units of the Partnerships object in writing in the manner described herein.

•  The limited partners of the Partnerships have been given their choice of the form of consideration to be received with respect to their distributable portion of the Affiliated Contribution proceeds to give them an opportunity to defer certain tax liability as well as participate in the growth of the Aimco Operating Partnership enterprise.

•  Pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization. To exercise this right, you must take the necessary steps provided by the Contribution Agreement. See “APPRAISAL RIGHTS.”

In evaluating these factors, the VMS Related Parties did not quantify or otherwise attach particular weight to any of them.

DETERMINATION OF CONSIDERATION BASED ON INDEPENDENT APPRAISALS

Selection and Qualifications of Independent Appraiser.  The Managing General Partner, an affiliate of the Aimco Operating Partnership, in its capacity as the managing general partner of VMS, retained the services of KTR Valuation and Consulting Services, LLC (“KTR”), an independent third party, to appraise the market value of the Affiliated Contribution Properties. Although the Managing General Partner briefly considered other appraisers, it considered KTR’s responsiveness, demonstrated on prior engagements with affiliates of the Managing General Partner, to be of particular importance in light of the impending maturity of the existing outstanding mortgage indebtedness and the potential need for quick responses and turnarounds on the initial appraisal and subsequent updates. Additionally, due to the geographically dispersed locations of the Properties, the Managing General Partner elected to retain a valuation consulting firm with a national presence. KTR is an experienced independent valuation consulting firm with offices in five U.S. cities. The Managing General Partner selected KTR based on these qualifications.

Factors Considered.  KTR performed complete appraisals of each of the Affiliated Contribution Properties. KTR has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice, the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. VMS furnished the appraiser with all of the necessary information requested by it in connection with the appraisal and represented to KTR that the information was true, correct and complete in all material

27

respects. No limitations were imposed on KTR by VMS, Aimco Properties, LLC or any of their affiliates. In preparing its valuation of the Affiliated Contribution Properties, KTR, among other things:

•  Inspected the Properties;

•  Interviewed County and City officials regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events;

•  Consulted market participants, including real estate brokers and property managers, regarding market parameters and activity;

•  Consulted with lenders and investor surveys regarding investment parameters;

•  Interviewed leasing agents for competitive complexes for property specific information;

•  Analyzed supply and demand factors affecting the local market for each Property;

•  Reviewed historical income and expense statements;

•  Reviewed the current rent roll; and

•  Reviewed other relevant financial and market information.

Summary of Approaches and Methodologies Employed.  The following summary describes the approaches and analyses employed by KTR in preparing the appraisals. KTR principally relied on two approaches to valuation: (i) the sales comparison approach and (ii) the income capitalization approach.

Using the sales comparison approach technique, an appraiser reaches a determination of a property’s value by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure entails gathering information regarding bona fide, recent arm’s length sales of comparable properties and comparing the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location and physical characteristics. Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability of this approach depends upon availability of comparable sales data, verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price.

As part of the sales comparison approach, KTR performed an effective gross income multiplier (“EGIM”) analysis. The EGIM analysis measures the relationship between the sale price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss.

The income capitalization approach is a process by which the anticipated flow of future benefits is capitalized into a value indication. KTR reported that the income capitalization approach is widely applied in appraising income producing properties. The reliability of this technique depends upon the reliability of the net income estimate and the capitalization rate. According to the KTR reports, the value derived from the income capitalization approach is well documented and market oriented. Because the Affiliated Contribution Properties are income producing realty and anticipated to continue to be so, KTR employed this approach in the valuation of the Properties.

As part of the income capitalization approach, KTR used a direct capitalization analysis to derive value for the Affiliated Contribution Properties. According to KTR’s report, the basic steps in the direct capitalization analysis are as follows: (i) calculate potential gross income from the dwelling units; (ii) estimate vacancy and credit loss to arrive at effective gross income; (iii) estimate operating expenses to arrive at the stabilized net operating income (“NOI”); (iv) develop the overall capitalization rate; and (v) divide NOI by the capitalization rate to arrive at the value.

The final step in the appraisal process is the reconciliation of the value indicators into a single value estimate. KTR considered the relative applicability of each of the approaches, examined the range between the value indications and placed major emphasis on the approach that appeared to produce the most reliable solution to the

28

specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data were analyzed and appropriate weight was given to each of the approaches to value.

For the appraisal of the Affiliated Contribution Properties, KTR relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. According to KTR’s report, although the sales comparison approach is considered a reliable method for valuing property, KTR believes that the income capitalization approach is the primary approach used for valuing income producing property, such as the Properties.

Summary of Independent Appraisals of the Properties.  KTR performed complete appraisals of the seven Affiliated Contribution Properties to be contributed in the Affiliated Contribution. The appraisals were first conducted in April of 2006 and were subsequently updated by KTR in November and December of 2006. The summaries set forth below describe the material conclusions reached by KTR in April, 2006 and November and December, 2006, based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. The estimated aggregate “as is” market value of the fee simple estate of the Affiliated Contribution Properties is $228,950,000, which is the sum of the higher of the appraised values determined by KTR for each of the Affiliated Contribution Properties.

CASA DE MONTEREY

The following is a summary of the appraisal of Casa de Monterey dated November 28, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit unadjusted sales prices ranging from $124,116 to $168,304. After adjustment, the comparable sales illustrated a range from $126,334 to $134,643 per unit with an average of $128,827 per unit. According to KTR’s report, a few of the sales required minor adjustments for location as well as adjustment because of superior and inferior physical characteristics. Based on the adjustments considered and indicators exhibited by the sales data with primary emphasis placed on three of the sales, KTR estimated a value of $126,000 per unit for Casa de Monterey. Applied to Casa de Monterey’s 144 units, this resulted in KTR’s total value estimate of approximately $18,100,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Casa de Monterey to be 47%, with the expense ratio of the five comparable properties ranging from 33% to 40%, with EGIMs ranging from 10.9 to 11.9. KTR concluded an EGIM of 9.5 for Casa de Monterey and applied the EGIM to the effective gross income for Casa de Monterey ($1,965,336), resulting in a value indication of approximately $18,700,000.

KTR estimated the value using the price per unit analysis at $18,100,000 and the value using EGIM analysis at $18,700,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $18,400,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Casa de Monterey. The assumptions employed by KTR to determine the value of Casa de Monterey under the income capitalization approach included:

•  monthly economic rent potential of $172,432 and annual gross rent potential of $2,069,184;

•  a loss to lease expense of 5.0%;

•  a concession loss of 0.5%;

•  a combined vacancy and credit loss allowance of 7.0%;

•  estimated utility income of $475 per unit;

•  other income of 4.3% of the gross rent potential or $86,400;

•  total expenses of $919,173; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,046,163 at 5.75%, resulting in a value conclusion for Casa de Monterey of approximately $18,200,000.

29

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $18,400,000, and the income capitalization approach resulted in a value of $18,200,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Casa de Monterey, KTR emphasized the income capitalization approach when it determined a final estimate of value for Casa de Monterey of $18,200,000.

The following is a summary of the appraisal of Casa de Monterey dated April 11, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit unadjusted sales prices ranging from $124,116 to $167,157. After adjustment, the comparable sales illustrated a range from $120,469 to $130,322 per unit with an average of $125,433 per unit. According to KTR’s report, a few of the sales required minor adjustments for location as well as adjustment because of superior and inferior physical characteristics. Based on the adjustments considered and indicators exhibited by the sales data with primary emphasis placed on four of the sales, KTR estimated a value of $125,000 per unit for Casa de Monterey. Applied to Casa de Monterey’s 144 units, this resulted in KTR’s total value estimate of approximately $18,000,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Casa de Monterey to be 47%, with the expense ratio of the five comparable properties ranging from 35% to 47%, with EGIMs ranging from 9.2 to 12.5. KTR concluded an EGIM of 9.5 for Casa de Monterey and applied the EGIM to the effective gross income for Casa de Monterey ($1,951,068), resulting in a value indication of approximately $18,500,000.

KTR estimated the value using the price per unit analysis at $18,000,000 and the value using EGIM analysis at $18,500,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $18,250,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Casa de Monterey. The assumptions employed by KTR to determine the value of Casa de Monterey under the income capitalization approach included:

•  monthly economic rent potential of $168,864 and annual gross rent potential of $2,026,368;

•  a loss to lease expense of 4.0%;

•  a concession loss of 0.5%;

•  a combined vacancy and credit loss allowance of 6.5%;

•  estimated utility income of $425 per unit;

•  other income of 4.3% of the gross rent potential or $86,400;

•  total expenses of $918,603; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,032,465 at 5.75%, resulting in a value conclusion for Casa de Monterey of approximately $18,000,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $18,250,000, and the income capitalization approach resulted in a value of $18,000,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Casa de Monterey, KTR emphasized the income capitalization approach when it determined a final estimate of value for Casa de Monterey of $18,000,000.

30

BUENA VISTA APARTMENTS

The following is a summary of the appraisal of Buena Vista Apartments dated December 8, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit adjusted sales prices ranging from $168,304 to $222,619. After adjustment, the comparable sales illustrated a range from $176,719 to $211,488 per unit with an average of $193,090 per unit. According to KTR’s report, three of the five sales required adjustments for location. Three of the sales required adjustment for superior average unit size. One of the sales required adjustment because of superior age and condition. Based on the adjustments considered and indicators exhibited by the sales data and equal emphasis placed on all of the sales, KTR estimated a value of $192,000 per unit for Buena Vista Apartments. Applied to Buena Vista Apartment’s 92 units, this resulted in KTR’s total value estimate of approximately $17,700,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Buena Vista Apartments to be 40%, with the expense ratio of the five comparable properties ranging from 30% to 34%, with EGIMs ranging from 11.4 to 13.4. KTR concluded an EGIM of 10.5 for Buena Vista Apartments and applied the EGIM to the effective gross income for Buena Vista Apartments ($1,706,033), resulting in a value indication of approximately $17,900,000.

KTR estimated the value using the price per unit analysis at $17,700,000 and the value using EGIM analysis at $17,900,000. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when KTR concluded a final value via the sales comparison approach of $17,800,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Buena Vista Apartments. The assumptions employed by KTR to determine the value of Buena Vista Apartments under the income capitalization approach included:

•  monthly economic rent potential of $143,678 and annual gross rent potential of $1,724,136;

•  a loss to lease expense of 3.0%;

•  a concession loss of 1.0%;

•  a combined vacancy and credit loss allowance of 2.5%;

•  estimated utility income of $272 per unit;

•  other income of 3.0% of the gross rent potential or $51,724;

•  total expenses of $679,351; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $986,094 at 5.75%, resulting in a value conclusion for Buena Vista Apartments of approximately $17,900,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $17,800,000, and the income capitalization approach resulted in a value of $17,900,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Buena Vista Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Buena Vista Apartments of $17,900,000.

The following is a summary of the appraisal of Buena Vista Apartments dated April 11, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit unadjusted sales prices ranging from $160,214 to $229,190. After adjustment, the comparable sales illustrated a range from $178,317 to $200,656 per

31

unit with an average of $190,733 per unit. According to KTR’s report, most of the sales required adjustments for location. Two of the sales required adjustments because of superior physical characteristics. Based on the adjustments considered and indicators exhibited by the sales data and equal emphasis placed on all of the sales, KTR estimated a value of $191,000 per unit for Buena Vista Apartments. Applied to Buena Vista Apartment’s 92 units, this resulted in KTR’s total value estimate of approximately $17,500,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Buena Vista Apartments to be 40%, with the expense ratio of the five comparable properties ranging from 28% to 47%, with EGIMs ranging from 9.2 to 13.4. KTR concluded an EGIM of 10.25 for Buena Vista Apartments and applied the EGIM to the effective gross income for Buena Vista Apartments ($1,623,821), resulting in a value indication of approximately $16,600,000.

KTR estimated the value using the price per unit analysis at $17,500,000 and the value using EGIM analysis at $16,600,000. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when KTR concluded a final value via the sales comparison approach of $17,000,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Buena Vista Apartments. The assumptions employed by KTR to determine the value of Buena Vista Apartments under the income capitalization approach included:

•  monthly economic rent potential of $141,144 and annual gross rent potential of $1,693,728;

•  a loss to lease expense of 3.0%;

•  a concession loss of 1.5%;

•  a combined vacancy and credit loss allowance of 4.0%;

•  estimated utility income of $255 per unit;

•  other income of 3.0% of the gross rent potential or $50,600;

•  total expenses of $650,492; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $973,329 at 5.75%, resulting in a value conclusion for Buena Vista Apartments of approximately $16,900,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $17,000,000, and the income capitalization approach resulted in a value of $16,900,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Buena Vista Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Buena Vista Apartments of $16,900,000.

CROSSWOOD PARK

The following is a summary of the appraisal of Crosswood Park dated December 8, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $70,238 to $116,327. All of the five sales examined by KTR represent sales of apartments that are of similar construction componentry to Crosswood Park. All of the sales are similar in terms of location and physical condition. Two of the comparable sales are newer than Crosswood Park. Minor differences exist as to the specific location of each comparable sale and Crosswood Park. The primary difference between the comparable sales and Crosswood Park are location, age and average unit size. The most value influencing difference between Crosswood Park and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to qualify

32

appropriate adjustments to the prices indicated by the comparable sales. KTR analyzed the difference between the net operating income (NOI) per unit of the comparable sales relative to the NOI of Crosswood Park and adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted range of per unit prices is $74,124 to $96,636, and the mean adjusted per unit price is $86,087. As no one sale required a significant degree of adjustment, KTR placed equal emphasis on each in concluding a value of $87,100 per unit for Crosswood Park.

Applied to Crosswood Park’s 180 units, this resulted in KTR’s total value estimate of $15,500,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Crosswood Park to be 53.8%, with the expense ratio of the five comparable properties ranging from 35% to 47%, with EGIMs ranging from 7.80 to 10.26. KTR concluded an EGIM of 7.8 for Crosswood Park and applied the EGIM to the effective gross income for Crosswood Park ($2,044,793), resulting in a value indication of approximately $16,000,000.

KTR estimated the value using the price per unit analysis at $15,500,000 and the EGIM analysis at $16,000,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $15,750,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Crosswood Park. The assumptions employed by KTR to determine the value of Crosswood Park under the income capitalization approach included:

•  monthly economic rent potential of $185,325 and annual gross rent potential of $2,223,900;

•  a loss to lease expense of 3.5%;

•  a concession loss of 2.0%;

•  a combined vacancy and credit loss allowance of 7.5%;

•  estimated utility income of $64,000;

•  other income of 2.5% of the gross rent potential;

•  total expenses of $1,099,368; and

•  capitalization rate of 6.0%;

Using the income capitalization approach, KTR capitalized the estimated net operating income of $945,425 at 6.0%, resulting in a value conclusion for Crosswood Park of approximately $15,750,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $15,750,000, and the income capitalization approach resulted in a value of $15,750,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach when it determined a final estimate of value for Crosswood Park of $15,750,000.

The following is a summary of the appraisal of Crosswood Park dated April 20, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $75,280 to $104,779. All of the five sales examined by KTR represent sales of apartments that are of similar construction componentry to Crosswood Park. All of the sales are similar in terms of location and physical condition. Two of the comparable sales are newer than Crosswood Park. Minor differences exist as to the specific location of each comparable sale and Crosswood Park. The primary difference between the comparable sales and Crosswood Park are age and average unit size. The most value influencing difference between Crosswood Park and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparable sales, KTR analyzed the difference between the net operating income (NOI) per unit of the comparable sales relative to the NOI of Crosswood Park and adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted range of per unit prices is $77,004

33

to $94,301, and the mean adjusted per unit price is $85,279. As no one sale required a significant degree of adjustment, KTR placed equal emphasis on each in concluding a value of $85,000 per unit for Crosswood Park.

Applied to Crosswood Park’s 180 units, this resulted in KTR’s total value estimate of $15,300,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Crosswood Park to be 51%, with the expense ratio of the five comparable properties ranging from 42% to 47%, with EGIMs ranging from 8.34 to 10.18. KTR concluded an EGIM of 7.75 for Crosswood Park and applied the EGIM to the effective gross income for Crosswood Park ($1,998,730), resulting in a value indication of approximately $15,500,000.

KTR estimated the value using the price per unit analysis at $15,300,000 and the EGIM analysis at $15,500,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $15,400,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Crosswood Park. The assumptions employed by KTR to determine the value of Crosswood Park under the income capitalization approach included:

•  monthly economic rent potential of $184,260 and annual gross rent potential of $2,211,120;

•  a loss to lease expense of 3.5%;

•  a concession loss of 4.0%;

•  a combined vacancy and credit loss allowance of 7.5%;

•  estimated utility income of $64,000;

•  other income of 2.5% of the gross rent potential;

•  total expenses of $1,083,549; and

•  capitalization rate of 6.0%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $915,181 at 6.0%, resulting in a value conclusion for Crosswood Park of approximately $15,300,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $15,400,000, and the income capitalization approach resulted in a value of $15,300,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Crosswood Park, KTR emphasized the income capitalization approach when it determined a final estimate of value for Crosswood Park of $15,300,000.

MOUNTAIN VIEW APARTMENTS

The following is a summary of the appraisal of Mountain View Apartments dated December 8, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $168,304 to $222,619. According to KTR’s report, all of the sales required adjustments for location. One of the sales required adjustment because of superior age and condition and one of the sales required adjustment for superior average unit size. The adjusted unit prices range from $176,719 to $189,226. The average adjusted unit price is $182,483. Based on the adjustments considered and equal emphasis placed on all five similar sales, KTR estimated a value of $182,500 per unit for Mountain View Apartments. Applied to Mountain View Apartment’s 168 units, this resulted in KTR’s total value estimate of approximately $30,700,000.

34

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Mountain View Apartments to be 43%, with the expense ratio of the five comparable properties ranging from 30% to 34%, with EGIMs ranging from 11.4 to 13.4. KTR concluded an EGIM of 10.5 for Mountain View Apartments and applied the EGIM to the effective gross income for Mountain View Apartments ($2,986,855), resulting in a value indication of approximately $31,400,000.

KTR estimated the value using the price per unit analysis at $30,700,000 and the value using EGIM analysis at $31,400,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $31,000,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Mountain View Apartments. The assumptions employed by KTR to determine the value of Mountain View Apartments under the income capitalization approach included:

•  monthly economic rent potential of $268,424 and annual gross rent potential of $3,168,768;

•  a loss to lease expense of 5.5%;

•  a concession loss of 1.0%;

•  a combined vacancy and credit loss allowance of 7.5%;

•  estimated utility income of $440 per unit;

•  other income of 4.5% of the gross rent potential or $142,800;

•  total expenses of $1,295,541; and

•  capitalization rate of 5.5%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,691,314 at 5.5%, resulting in a value conclusion for Mountain View Apartments of approximately $30,800,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $31,000,000, and the income capitalization approach resulted in a value of $30,800,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Mountain View Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Mountain View Apartments of $30,800,000.

The following is a summary of the appraisal of Mountain View Apartments dated April 11, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $160,214 to $229,190. According to KTR’s report, all of the sales required adjustments for location. Two of the sales required adjustments because of superior physical characteristics. The three sales that required the least overall adjustments produced an average adjusted price of $182,682 per unit. Based on the adjustments considered and indicators exhibited by the sales data and equal emphasis placed on the three most similar sales, KTR estimated a value of $182,500 per unit for Mountain View Apartments. Applied to Mountain View Apartment’s 168 units, this resulted in KTR’s total value estimate of approximately $30,700,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Mountain View Apartments to be 43%, with the expense ratio of the five comparable properties ranging from 28% to 47%, with EGIMs ranging from 9.2 to 13.4. KTR concluded an EGIM of 10.25 for Mountain View Apartments and applied the

35

EGIM to the effective gross income for Mountain View Apartments ($2,926,740), resulting in a value indication of approximately $30,000,000.

KTR estimated the value using the price per unit analysis at $30,700,000 and the value using EGIM analysis at $30,000,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $30,350,000.

Valuation Under the Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Mountain View Apartments. The assumptions employed by KTR to determine the value of Mountain View Apartments under the income capitalization approach included:

•  monthly economic rent potential of $264,064 and annual gross rent potential of $3,168,768;

•  a loss to lease expense of 6.0%;

•  a concession loss of 1.0%;

•  a combined vacancy and credit loss allowance of 7.0%;

•  estimated utility income of $400 per unit;

•  other income of 4.2% of the gross rent potential or $134,400;

•  total expenses of $1,263,286; and

•  capitalization rate of 5.5%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,663,454 at 5.5%, resulting in a value conclusion for Mountain View Apartments of approximately $30,200,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $30,350,000, and the income capitalization approach resulted in a value of $30,200,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Mountain View Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Mountain View Apartments of $30,200,000.

PATHFINDER VILLAGE APARTMENTS

The following is a summary of the appraisal of Pathfinder Village Apartments dated December 8, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $121,875 to $180,444. The sales data was analyzed and compared to Pathfinder Village Apartments for such items as time, location, size, amenities and condition. The primary difference between the comparable sales and Pathfinder Village Apartments are age/condition, average unit size and amenities. The adjusted unit prices range from $121,875 to $139,664. The average adjusted unit price is $136,941. None of the sales required a significant degree of adjustment and KTR placed on equal emphasis on each in concluding to a value of $137,000 per unit for Pathfinder Village Apartments. Applied to Pathfinder Village Apartment’s 246 units, this resulted in KTR’s total value estimate of $33,700,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Pathfinder Village Apartments to be 52.5%, with the expense ratio of the five comparable properties ranging from 36.8% to 52.2%, with EGIMs ranging from 9.3 to 11.0. KTR concluded an EGIM of 9.0 for Pathfinder Village Apartments and

36

applied the EGIM to the effective gross income for Pathfinder Village Apartments ($4,012,908), resulting in a value indication of approximately $36,100,000.

KTR estimated the value using the price per unit analysis at $33,700,000 and the value using EGIM analysis at $36,100,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $34,900,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Pathfinder Village Apartments. The assumptions employed by KTR to determine the value of Pathfinder Village Apartments under the income capitalization approach included:

•  monthly economic rent potential of $356,760 and annual gross rent potential of $4,281,120;

•  a loss to lease expense of 5.0%;

•  a concession loss of 5.0%;

•  a combined vacancy and credit loss allowance of 5.0%;

•  estimated utility income of $650 per unit;

•  other income of 5.0% of the gross rent potential or $214,056;

•  total expenses of $2,105,766; and

•  capitalization rate of 5.5%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,907,142 at 5.5%, resulting in a value conclusion for Pathfinder Village Apartments of approximately $34,700,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $34,900,000, and the income capitalization approach resulted in a value of $34,700,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Pathfinder Village Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Pathfinder Village Apartments of $34,700,000.

The following is a summary of the appraisal of Pathfinder Village Apartments dated April 14, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of six multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $108,824 to $147,015. All of the comparable sales represent sales of apartments that are of similar construction to Pathfinder Village Apartments and are of the same general vintage and similar in terms of physical condition to Pathfinder Village Apartments. Minor differences exist as to the specific location of each comparable sale and Pathfinder Village Apartments. The primary difference between the comparable sales and Pathfinder Village Apartments are location and average unit size. The most value influencing difference between Pathfinder Village Apartments and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparable sales, KTR analyzed the difference between the net operating income (NOI) per unit of the comparable sales relative to the NOI of Pathfinder Village Apartments. KTR adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted unit prices range from $110,156 to $145,031. The mean and median adjusted unit price is $125,452 and $121,791. KTR placed an emphasis on all of the sales due to their similarity compared to Pathfinder Village in concluding to a value of $125,000 per unit for Pathfinder Village Apartments. Applied to Pathfinder Village Apartment’s 246 units, this resulted in KTR’s total value estimate of $30,750,000.

37

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Pathfinder Village Apartments to be 53%, with the expense ratio of the six comparable properties ranging from 42% to 53%, with EGIMs ranging from 8.2 to 9.4. KTR concluded an EGIM of 9.25 for Pathfinder Village Apartments and applied the EGIM to the effective gross income for Pathfinder Village Apartments ($3,837,984), resulting in a value indication of approximately $35,500,000.

KTR estimated the value using the price per unit analysis at $30,750,000 and the value using EGIM analysis at $35,500,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $33,100,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Pathfinder Village Apartments. The assumptions employed by KTR to determine the value of Pathfinder Village Apartments under the income capitalization approach included:

•  monthly economic rent potential of $337,384 and annual gross rent potential of $4,408,608;

•  a loss to lease expense of 3.0%;

•  a concession loss of 5.0%;

•  a combined vacancy and credit loss allowance of 6.0%;

•  estimated utility income of $625 per unit;

•  other income of 5.0% of the gross rent potential or $202,430;

•  total expenses of $2,044,799; and

•  capitalization rate of 5.5%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $1,793,185 at 5.5%, resulting in a value conclusion for Pathfinder Village Apartments of approximately $32,600,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $33,100,000, and the income capitalization approach resulted in a value of $32,600,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Pathfinder Village Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Pathfinder Village Apartments of $32,600,000.

SCOTCHOLLOW APARTMENTS

The following is a summary of the appraisal of Scotchollow Apartments dated December 8, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $156,250 to $184,615. All of the comparable sales represent sales of apartments that are of similar construction componentry to Scotchollow Apartments and are of the same general vintage and similar in terms of physical condition to Scotchollow Apartments. Minor differences exist as to the specific location of each comparable and Scotchollow Apartments. The primary difference between the comparable sales and Scotchollow Apartments are location, age/physical condition and average unit size. The adjusted unit prices range from $155,077 to $156,250 with an average of $156,078 per unit. The average adjusted unit price is $156,078. None of the sales required a significant degree of adjustment and KTR placed an equal emphasis on each in concluding to a value of $156,000 per unit for

38

Scotchollow Apartments. Applied to Scotchollow Apartment’s 418 units, this resulted in KTR’s total value estimate of approximately $65,200,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Scotchollow Apartments to be 47%, with the expense ratio of the five comparable properties ranging from 35% to 46%, with EGIMs ranging from 10.4 to 11.6. KTR concluded an EGIM of 10.0 for Scotchollow Apartments and applied the EGIM to the effective gross income for Scotchollow Apartments ($7,003,543), resulting in a value conclusion of approximately $70,000,000.

KTR estimated the value using the price per unit analysis at $65,200,000 and the value using EGIM analysis at $70,000,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $67,600,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Scotchollow Apartments. The assumptions employed by KTR to determine the value of Scotchollow Apartments under the income capitalization approach included:

•  monthly economic rent potential of $637,504 and annual gross rent potential of $7,650,048;

•  a loss to lease expense of 8.0%;

•  a concession loss of 2.0%;

•  a combined vacancy and credit loss allowance of 4.0%;

•  estimated utility income of $375 per unit;

•  other income of 3.5% of the gross rent potential or $267,752;

•  total expenses of $3,274,622; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $3,728,921 at 5.5%, resulting in a value conclusion for Scotchollow Apartments of approximately $67,800,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $67,600,000, and the income capitalization approach resulted in a value of $67,800,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Scotchollow Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Scotchollow Apartments of $67,800,000.

The following is a summary of the appraisal of Scotchollow Apartments dated April 13, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of six multifamily apartment properties in the competitive market. The sales reflected per unit prices ranging from $126,818 to $171,877. All of the comparable sales represent sales of apartments that are of similar construction to Scotchollow Apartments and are of the same general vintage and similar in terms of physical condition to Scotchollow Apartments. Minor differences exist as to the specific location of each comparable and Scotchollow Apartments. The primary difference between the comparable sales and Scotchollow Apartments are location and average unit size. The most value influencing difference between the subject and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparable sales, KTR analyzed the difference between the net operating income (NOI) per unit of the comparable sales relative to the NOI of Scotchollow Apartments. KTR adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted unit prices range from $137,252 to $177,033. The

39

mean and median adjusted unit price is $157,338 and $154,394. KTR placed an emphasis on all of the sales in concluding to a value of $155,000 per unit for Scotchollow Apartments. Applied to Scotchollow Apartment’s 418 units, this resulted in KTR’s total value estimate of $64,790,000.

KTR also performed an EGIM analysis. KTR estimated the operating expense ratio of Scotchollow Apartments to be 46%, with the expense ratio of the six comparable properties ranging from 42% to 52%, with EGIMs ranging from 9.3 to 10.8. KTR concluded an EGIM of 9.75 for Scotchollow Apartments and applied the EGIM to the stabilized effective gross income for Scotchollow Apartments ($6,659,729), resulting in a value conclusion of approximately $64,900,000.

KTR estimated the value using the price per unit analysis at $64,800,000 and the value using EGIM analysis at $64,900,000. Due to the similarity of the resulting value indicators, KTR gave relatively equal consideration to both techniques when it concluded a final value via the sales comparison approach of $64,850,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for Scotchollow Apartments. The assumptions employed by KTR to determine the value of Scotchollow Apartments under the income capitalization approach included:

•  monthly economic rent potential of $597,042 and annual gross rent potential of $7,164,504;

•  a loss to lease expense of 4.0%;

•  a concession loss of 4.0%;

•  a combined vacancy and credit loss allowance of 6.0%;

•  estimated utility income of $335 per unit;

•  other income of 5.0% of the gross rent potential or $358,225;

•  total expenses of $3,061,039; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $3,598,690 at 5.5%, resulting in a value conclusion for Scotchollow Apartments of approximately $65,400,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $64,850,000, and the income capitalization approach resulted in a value of $65,400,000. KTR reported that the local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of Scotchollow Apartments, KTR emphasized the income capitalization approach when it determined a final estimate of value for Scotchollow Apartments of $65,400,000.

THE TOWERS OF WESTCHESTER PARK

The following is a summary of the appraisal of The Towers of Westchester Park dated December 4, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflect per unit prices ranging from $101,124 to $172,743. The primary differences between the comparable sales and The Towers of Westchester Park are location, quality, condition and average unit size. The most value influencing difference between The Towers of Westchester Park and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparable sales, KTR analyzed the difference between the NOI per unit of the comparable sales relative to the NOI of The Towers of Westchester Park. KTR adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted unit

40

prices range from $122,370 to $193,985 with an average of $151,573. KTR estimated that the capitalization rate for The Towers of Westchester Park was 5.5% which is just below the capitalization rate reflected in one of the comparable sales, which reflect adjusted unit prices of $142,044. KTR concluded that The Towers of Westchester Park had a value slightly above this adjusted unit price. Accordingly, KTR estimated the unit value for The Towers of Westchester Park to be $144,000. Applied to The Towers of Westchester Park’s 303 units, this resulted in KTR’s total value estimate of approximately $43,600,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for The Towers of Westchester Park. The assumptions employed by KTR to determine the value of The Towers of Westchester Park under the income capitalization approach included:

•  based on current average contract rents and estimated annual market rent growth due to inflation, KTR estimated potential rental income of $4,920,087 for the upcoming year;

•  a combined vacancy and credit loss of 5.0%;

•  a concession loss of 2.0%;

•  estimated utility reimbursement income of $400 per unit for the upcoming year;

•  other income of $650 per unit for the upcoming year;

•  total expenses of $2,483,860 or $8,198 per unit inclusive of reserves; and

•  capitalization rate of 5.5%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $2,409,971 at 5.5%, resulting in a value conclusion for The Towers of Westchester Park of approximately $43,800,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $43,600,000, and the income capitalization approach resulted in a value of $43,800,000. KTR reported that sufficient sales data was available from the local and regional markets in order to develop a sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of the subject property, KTR emphasized the income capitalization approach when it determined a final estimate of value for The Towers of Westchester Park of $43,800,000.

The following is a summary of the appraisal of The Towers of Westchester Park dated April 20, 2006:

Valuation Under the Sales Comparison Approach.  KTR examined and analyzed the sales of five multifamily apartment properties in the competitive market. The sales reflect per unit prices ranging from $117,555 to $177,083. The primary difference between the comparable sales and The Towers of Westchester Park are location, quality, condition and average unit size. The most value influencing difference between The Towers of Westchester Park and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparable sales, KTR analyzed the difference between the NOI per unit of the comparable sales relative to the NOI of The Towers of Westchester Park. KTR adjusted the sale price of the comparable sales based on percentage differences in net income. The adjusted unit prices range from $116,802 to $169,253 with an average of $144,023. KTR estimated that the capitalization rate for The Towers of Westchester Park was 5.75% which is most similar to the capitalization rate reflected in two of the comparable sales, which reflect adjusted unit prices of $142,987 and $142,974. KTR concluded that The Towers of Westchester Park had a value slightly above these adjusted unit prices. Accordingly, KTR estimated the unit value for The Towers of Westchester Park to be $144,000. Applied to The Towers of Westchester Park’s 303 units, this resulted in KTR’s total value estimate of approximately $43,600,000.

Valuation Under the Income Capitalization Approach.  Under the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for The Towers of Westchester Park. The assumptions

41

employed by KTR to determine the value of The Towers of Westchester Park under the income capitalization approach included:

•  based on current average contract rents and estimated annual market rent growth due to inflation, KTR estimated potential rental income of $4,772,977 for the upcoming year;

•  a combined vacancy and credit loss of 5.0%;

•  a concession loss of 1.0%;

•  estimated utility reimbursement income of $475 per unit for the upcoming year;

•  other income of $600 per unit for the upcoming year;

•  total expenses of $2,284,477 or $7,540 per unit inclusive of reserves; and

•  capitalization rate of 5.75%.

Using the income capitalization approach, KTR capitalized the estimated net operating income of $2,512,696 at 5.75%, resulting in a value conclusion for The Towers of Westchester Park of approximately $43,700,000.

Reconciliation of Values and Conclusions of KTR.  The sales comparison approach resulted in a value of $43,600,000, and the income capitalization approach resulted in a value of $43,700,000. KTR reported that sufficient sales data was available from the local and regional markets in order to develop a sales comparison approach. KTR also stated in its report that the value derived through the use of the sales comparison approach supports the value concluded for the property via the income capitalization approach. Due to the income producing nature of the subject property, KTR emphasized the income capitalization approach when it determined a final estimate of value for The Towers of Westchester Park of $43,700,000.

Assumptions, Limitations and Qualifications of KTR’s Valuation.  In preparing each of the appraisals, KTR relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of VMS. In arriving at each of the appraisals, KTR assumed: that all information known to VMS and relative to the valuation had been accurately furnished and that there were no undisclosed leases, agreements, liens or other encumbrances affecting the use of the Properties; that ownership and management are competent and in responsible hands; no responsibility beyond reasonableness for matters of a legal nature, whether existing or pending; and information furnished or prepared by others was reliable.

Compensation of Appraiser.  KTR’s fee for the appraisals was approximately $108,000. Because appraisals to establish the amount of consideration to be paid would not have been necessary in a sale to unrelated third parties, the parties agreed that Aimco Properties, LLC would pay the appraisal fees. In addition to the appraisals performed in connection with the Affiliated Contribution, during the prior two years, KTR has been paid approximately $231,000 for appraisal services by the Aimco Operating Partnership and its affiliates. Except as set forth above, during the prior two years, no material relationship has existed between KTR and VMS or the Aimco Operating Partnership or any of their affiliates. The Managing General Partner believes that its relationship with KTR had no negative impact on its independence in conducting its appraisals.

Availability of Appraisal Reports.  You may obtain a full copy of KTR’s appraisals upon request, without charge, by contacting the information agent at (800) 217-9608 (toll-free). Copies of the appraisals for the Affiliated Contribution Properties are also available for inspection and copying at the principal executive offices of VMS during regular business hours by any interested limited partner or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC.

42

Determination of Consideration.  After receipt of KTR’s appraisals, the VMS Related Parties considered the valuation approaches, methodologies and analyses described by KTR and determined that such valuation approaches, methodologies and analyses were appropriate in fairly valuing real estate assets such as the Affiliated Contribution Properties. Because the consideration for the Affiliated Contribution Properties was based on the greater of the appraised values for each of the Affiliated Contribution Properties noted above and Aimco’s internal valuation for each such property, the VMS Related Parties then adopted the valuations established by the appraisals as the consideration for each Affiliated Contribution Property for which such appraised value exceeded Aimco’s internal valuation for such Property, resulting in a total consideration valued at approximately $230,078,260. In only one case, Buena Vista Apartments, was Aimco’s internal valuation of $19,028,260 higher than the appraised value of $17,900,000 and used in arriving at the Consideration. In the case of the remaining six Affiliated Contribution Properties, the aggregate valuation established by the appraisals for such properties exceeded the aggregate valuation established by Aimco’s internal valuation by $17,180,154. The agreement by Aimco Properties, LLC to the Consideration is also based on the receipt of all seven properties described above in one transaction. Aimco Properties, LLC did not allocate the Consideration separately, but rather used the information described above as a basis for the Consideration for all seven Affiliated Contribution Properties. There can be no assurances that Aimco Properties, LLC would be willing to purchase less than all seven Affiliated Contribution Properties on the same basis, or at all.

43

RISK FACTORS

The Transactions have certain risks and disadvantages. Before deciding whether or not to object to either of the Transactions, you should carefully consider the risks described below.

Some of the information in this proxy statement-prospectus may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “continue” or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or state other “forward-looking” information. When considering such forward-looking statements, you should keep in mind the risk factors and other cautionary statements in or incorporated by reference into this proxy statement-prospectus. The risk factors noted in this section and other factors noted throughout this proxy statement-prospectus or incorporated herein, including specific risks and uncertainties, could cause the actual results to differ materially from those contained in any forward-looking statement.

Risks Related to the Transactions

The Terms of the Affiliated Contribution Were Not Determined Based on Arms-Length Negotiations.  The Managing General Partner is an affiliate of Aimco Properties, LLC. As a result, the Managing General Partner has substantial conflicts of interest with respect to the Affiliated Contribution. Although the Managing General Partner believes that the aggregate consideration for these Properties is fair, it is possible that a non-affiliated purchaser might purchase the Properties for a higher price.

The Managing General Partner Did Not Undertake Certain Procedural Safeguards.  The Managing General Partner has not retained an unaffiliated representative to act on behalf of the limited partners of the Partnerships in negotiating the terms of the Affiliated Contribution. If an unaffiliated representative had been retained, it is possible that such representative could have negotiated greater consideration or a higher price for the Affiliated Contribution Properties from third parties or Aimco. Additionally, the Transactions were structured so as to require the approval of a majority of limited partners, including the Managing General Partner and Aimco, rather than a majority of limited partners unaffiliated with the Managing General Partner or Aimco.

Limited Partners Will Not Participate in the Future Income, Cash Flow or Price Appreciation of the Sold Properties.  Under the existing debt structure, even after the refinancing of VMS’s indebtedness described herein, the recent operating performance of the Properties has not been sufficient to generate cash available for distributions to limited partners. However, in the future, the operating performance and value of the Properties could increase, which could result in greater cash flow available for distributions in the future. After the completion of the Transactions, limited partners will not participate in any future income, cash flow or appreciation in value of the Properties, although limited partners who elect to receive Common OP Units in lieu of cash will continue to participate indirectly with respect to the Affiliated Contribution Properties.

VMS Will Be Changing Fundamentally the Nature of a Significant Portion of its Investment.  Although the Managing General Partner intends to complete both the Affiliated Contribution and the Unaffiliated Sales simultaneously, if the Transactions are not completed simultaneously, VMS will have changed fundamentally the nature of a significant portion of its investment. A change in VMS’s property portfolio could result in a negative impact on the net cash flow from operations of the Properties remaining in the portfolio.

The Future Value of the Common OP Units Will Fluctuate.  In the Affiliated Contribution, limited partners may elect to receive Common OP Units. Each Common OP Unit is redeemable, after a one-year holding period, for one share of Class A Common Stock or cash equal to the market value of one share of Class A Common Stock at the time of redemption, as the Aimco Operating Partnership may elect. The number of Common OP Units to be issued to those that elected to waive any portion of the cash distribution and receive Common OP Units instead will be equal to (i) the amount of the cash distribution waived by such limited partner divided by (ii) the average daily closing price of a share of Class A Common Stock on the NYSE over the twenty trading-day period ended two days prior to consummation of the Affiliated Contribution. On          , 2007, the last reported sale price of Class A Common Stock on the NYSE was $     . During the period          , 2007 to          , 2007, the high and low sales prices of the Class A Common Stock on the NYSE were $     and $     , respectively. Limited partners are

44

instructed to contact The Altman Group, Inc. with any direct questions or requests for information, including an estimate of Common OP Units issuable with respect to waivers of particular cash amounts, as of the most recent practicable date. Please see the information set forth under “HOW TO OBTAIN ADDITIONAL INFORMATION.” The market price of Class A Common Stock varies from time to time. These variations may be caused by a number of factors, including changes in Aimco’s business, operations or prospects, regulatory considerations and general market and economic considerations. The number of Common OP Units will not be adjusted for any change in the market price of Class A Common Stock. Accordingly, if the market value of Common OP Units declines prior to the time the distribution with respect to the Affiliated Contribution occurs, the value of the consideration to be received by limited partners will decline. In addition, because the date that the Affiliated Contribution is completed will be later than the date prior to which limited partners may object to the Affiliated Contribution, limited partners will not know the exact value of the Common OP Units that will be issued in the Affiliated Contribution at the time they determine what form of consideration to elect. Because of these factors, at the time of distribution, limited partners electing to receive Common OP Units could receive less current value than would have been received if such limited partner had elected to receive cash. In addition, although the Aimco Operating Partnership makes quarterly distributions on its Common OP Units, there can be no assurance regarding the amounts of available cash that the Aimco Operating Partnership will generate or the portion that its general partner will choose to distribute.

Limited Partners Will Recognize Gain Upon a Sale of the Unaffiliated Sale Properties.  Limited partners will recognize gain upon the sale of the Unaffiliated Sale Properties. When the Unaffiliated Sale Properties are sold, each of the Partnerships, as a result of the sales, will recognize gain equal to their respective shares of the sum of the cash received for the Properties plus the amount of liabilities assumed by the purchaser, minus VMS’s adjusted basis in the Properties. This gain recognized with respect to the Properties will be allocated by the Partnerships to the general partners and the limited partners, in accordance with the terms of the partnership agreements. Assuming a purchase price (including assumed liabilities) of $59,636,000, and basis of the properties as of September 30, 2006, the Managing General Partner estimates that the unrecaptured section 1250 gain per unit will be $42,506 per unit of Portfolio I and $42,385 per unit of Portfolio II. When viewing the Unaffiliated Sales on a stand alone basis, the unrecaptured section 1250 gain per unit will be limited to the estimated gain on the sales of $38,502 per Portfolio I nondefaulted unit and $38,389 per Portfolio II nondefaulted unit. It is not expected that there will be any additional taxable gain per unit beyond the unrecaptured section 1250 gain. The cash proceeds distributable are estimated to be $8,985 per Portfolio I nondefaulted unit and $8,916 per Portfolio II nondefaulted unit, an amount that may be insufficient to pay taxes on the gain, as is discussed below. These estimates are based upon information currently available to the Managing General Partner. There can be no assurance that these estimates will prove accurate. In addition, tax consequences to particular limited partners may vary depending on the effect of: (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or revalued by the Partnerships or VMS. Limited partners are urged to consult their tax advisors as to their particular situations and tax consequences. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

Limited Partners Will Recognize Gain to the Extent That the Affiliated Contribution Properties Are Sold for Cash to Aimco Properties, LLC.  To the extent that any limited partners receive cash with respect to the Affiliated Contribution, VMS will receive cash from Aimco Properties, LLC, and as a result will recognize taxable income. On the other hand, to the extent that limited partners elect to receive Common OP Units, VMS is not expected to recognize taxable income. Taxable income recognized by VMS will pass through to the Partnerships, and from the Partnerships to the partners, and therefore will be taxable to the partners, including limited partners who elect to receive Common OP Units. The amount of the taxable gain recognized by VMS, and passed through to the partners, will depend on the extent to which limited partners receive cash in connection with the Affiliated Contribution and the amount and status of liabilities assumed by the Aimco Operating Partnership. In addition, tax consequences to particular limited partners may vary depending on the effect of (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or received by the Partnerships or VMS. Each limited partner should consult his or her tax advisor regarding the tax consequences to him or her. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

45

Limited Partners May Recognize Gain Upon Liquidation of VMS and the Partnerships.  The Partnerships will recognize gain or loss on the liquidation of VMS equal to the difference, if any, between the sum of the amount of cash distributed to the Partnerships and the Partnerships’ adjusted basis in their interests in VMS after adjustment for any gain or loss from operation of VMS, including from the contribution and sale of the Properties, through the liquidation of VMS. Any such gain or loss will be passed through, and will be taxable, to the partners, including the limited partners. A partner who receives cash in connection with the Transactions will recognize gain or loss on the liquidation of his or her interest in the Partnership equal to the difference between the sum of the amount of cash and other property distributed to the partner and the partner’s adjusted basis in his or her Partnership interest after adjustment for any gain or loss from operation of the Partnership, including from the contribution and sale of the Properties and the liquidation of VMS, through the Partnership’s liquidation. See “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

A Partner’s Tax Liabilities from Disposition of the Properties and the Liquidations of VMS and the Partnerships May Exceed the Cash Proceeds Available for Distribution.  Proceeds available for distribution to a partner from the disposition of the Properties will likely be less than the tax liability of the partner resulting from the Transactions and the liquidations of VMS and the Partnerships. Accordingly, partners may be required to use funds from sources other than distributions from the Partnership to pay income tax attributable to a sale of the Properties or liquidation of a partner’s interest in the Partnership.

Limited Partners May Have State, Local and Other Tax Liabilities.  In addition to United States federal income taxes, there may be state, local and other tax considerations. You are urged to consult your tax advisor regarding the United States federal, state, local and foreign tax consequences of the Transactions.

Risks Related to an Investment in Common OP Units

There Are Significant Restrictions on the Ability to Transfer Common OP Units.  There is no public market for the Common OP Units. In addition, the agreement of limited partnership of the Aimco Operating Partnership restricts the transferability of Common OP Units. Until the expiration of a one-year holding period, subject to certain exceptions, investors may not transfer Common OP Units without the consent of the general partner of the Aimco Operating Partnership. Thereafter investors may transfer such Common OP Units subject to the general partner’s right of first refusal. The Aimco Operating Partnership has no plans to list the Common OP Units on a securities exchange. It is unlikely that any person will make a market in the Common OP Units, or that an active market for the Common OP Units will develop. If a market for the Common OP Units develops and the Common OP Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” the Aimco Operating Partnership would be classified as a publicly traded partnership for United States federal income tax purposes, which could have a material adverse effect on the Aimco Operating Partnership.

Cash Distributions by the Aimco Operating Partnership Are Not Guaranteed and May Fluctuate with Partnership Performance.  Although the Aimco Operating Partnership makes quarterly distributions on its Common OP Units, there can be no assurance regarding the amounts of available cash that the Aimco Operating Partnership will generate or the portion that its general partner will choose to distribute. The actual amounts of available cash will depend upon numerous factors, including profitability of operations, required principal and interest payments on the Aimco Operating Partnership’s debt, the cost of acquisitions (including related debt service payments), the Aimco Operating Partnership’s issuance of debt and equity securities, fluctuations in working capital, capital expenditures, adjustments in reserves, prevailing economic conditions and financial, business and other factors, some of which may be beyond the Aimco Operating Partnership’s control. The Aimco Operating Partnership makes quarterly distributions to holders of Common OP Units (on a per unit basis) that generally are equal to the dividends paid on the Class A Common Stock (on a per share basis). However, such distributions will not necessarily continue to be equal to such dividends. The Aimco Operating Partnership’s agreement of limited partnership gives the Aimco general partner discretion in establishing reserves for the proper conduct of the partnership’s business that will affect the amount of available cash. The Aimco Operating Partnership is required to make reserves for the future payment of principal and interest under its credit facilities and other indebtedness. In addition, its credit facility limits the Aimco Operating Partnership’s ability to distribute cash to holders of Common OP Units. As a result of these and other factors, there can be no assurance regarding actual levels of cash

46

distributions on Common OP Units, and the Aimco Operating Partnership’s ability to distribute cash may be limited during the existence of any events of default under any of its debt instruments.

Holders of Common OP Units Are Limited in Their Ability to Effect a Change of Control.  In order to comply with specific REIT tax requirements, Aimco’s charter has restrictions on the ownership of its equity securities. The limited partners of the Aimco Operating Partnership are unable to remove the general partner of the Aimco Operating Partnership or to vote in the election of Aimco’s directors unless they own shares of Aimco. As a result, limited partners and stockholders are limited in their ability to effect a change of control of the Aimco Operating Partnership and Aimco.

Holders of Common OP Units Have Limited Voting Rights.  The Aimco Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of Common OP Units have only limited voting rights on matters affecting the Aimco Operating Partnership’s business. Such matters relate to certain amendments of the partnership agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors and certain transfers by the general partner of its interest in the Aimco Operating Partnership or the admission of a successor general partner. Holders of Common OP Units have no right to elect the general partner on an annual or other continuing basis, or to remove the general partner. As a result, holders of Common OP Units have limited influence on matters affecting the operation of the Aimco Operating Partnership, and third parties may find it difficult to attempt to gain control or influence the activities of the Aimco Operating Partnership.

Holders of Common OP Units Are Subject to Dilution.  The Aimco Operating Partnership may issue an unlimited number of additional Common OP Units or other securities for such consideration and on such terms as it may establish, without the approval of the OP Unitholders. Such securities could have priority over the Common OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of Common OP Units.

Aimco May Have Conflicts of Interest with Holders of Common OP Units.  Conflicts of interest have arisen and could arise in the future as a result of the relationships between the Aimco Operating Partnership’s general partner and its affiliates (including Aimco), on the one hand, and the Aimco Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner have fiduciary duties to manage the general partner in a manner beneficial to Aimco, as the sole stockholder of the general partner. At the same time, the general partner, as the general partner, has fiduciary duties to manage the Aimco Operating Partnership in a manner beneficial to the Aimco Operating Partnership and its partners. The duties of the general partner, as general partner, to the Aimco Operating Partnership and its partners may therefore come into conflict with the duties of the directors and officers of the general partner to its sole stockholder, Aimco. Such conflicts of interest might arise in the following situations, among others:

•  Decisions of the general partner with respect to the amount and timing of cash expenditures, borrowings, issuances of additional interests and reserves in any quarter will affect whether or the extent to which there is available cash to make distributions in a given quarter.

•  Under the terms of its agreement of limited partnership, the Aimco Operating Partnership will reimburse its general partner and its general partner’s affiliates for costs incurred in managing and operating the Aimco Operating Partnership, including compensation of officers and employees.

•  Whenever possible, the general partner seeks to limit the Aimco Operating Partnership’s liability under contractual arrangements to all or particular assets of the Aimco Operating Partnership, with the other party thereto to have no recourse against the general partner or its assets.

•  Any agreements between the Aimco Operating Partnership and its general partner and its general partner’s affiliates will not grant to the Common OP Unitholders, separate and apart from the Aimco Operating Partnership, the right to enforce the obligations of the general partner and such affiliates in favor of the Aimco Operating Partnership. Therefore, the general partner, in its capacity as the general partner of the Aimco Operating Partnership, will be primarily responsible for enforcing such obligations.

47

•  Under the terms of the Aimco Operating Partnership’s agreement of limited partnership, the general partner is not restricted from causing the Aimco Operating Partnership to pay the general partner or its affiliates for any services rendered on terms that are fair and reasonable to the Aimco Operating Partnership or entering into additional contractual arrangements with any of such entities on behalf of the Aimco Operating Partnership. Neither the agreement of limited partnership nor any of the other agreements, contracts and arrangements between the Aimco Operating Partnership, on the one hand, and the general partner and its affiliates, on the other, are or will be the result of arms-length negotiations.

Provisions in the Agreement of Limited Partnership May Limit the Ability of a Holder of Common OP Units to Challenge Actions Taken by the General Partner.  Unless otherwise provided for in the relevant partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The Aimco Operating Partnership’s agreement of limited partnership expressly authorizes the general partner to enter into, on behalf of the Aimco Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the Aimco Operating Partnership and its general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The latitude given in the agreement of limited partnership to the general partner in resolving conflicts of interest may significantly limit the ability of a holder of Common OP Units to challenge what might otherwise be a breach of fiduciary duty. The general partner believes, however, that such latitude is necessary and appropriate to enable it to serve as the general partner of the Aimco Operating Partnership without undue risk of liability.

The Agreement of Limited Partnership Limits the Liability of the General Partner for Actions Taken in Good Faith.  The Aimco Operating Partnership’s agreement of limited partnership expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the Aimco Operating Partnership, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. In addition, the Aimco Operating Partnership is required to indemnify the general partner, its affiliates and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law, against any and all losses, claims, damages, liabilities, joint or several, expenses, judgments, fines and other actions incurred by the general partner or such other persons, provided that the Aimco Operating Partnership will not indemnify for (i) willful misconduct or a knowing violation of the law or (ii) for any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement. The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and the general partner has not obtained an opinion of counsel covering the provisions set forth in the Aimco Operating Partnership’s agreement of limited partnership that purport to waive or restrict the fiduciary duties of the Aimco General Partner that would be in effect under common law were it not for the agreement of limited partnership.

Certain United States Tax Risks Associated with an Investment in the Common OP Units.

For a general discussion of certain United States federal income tax consequences resulting from acquiring, holding, exchanging, and otherwise disposing of Common OP Units, see “UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.”

Consequences of Exchanging Property for Common OP Units.  No gain or loss generally will be recognized for United States federal income tax purposes by VMS in contributing property to Aimco Properties, LLC for which Common OP Units are issued to the limited partners. If, however, in connection with such a contribution of property, VMS receives, or is deemed to receive, cash or other consideration, the receipt or deemed receipt of such cash or other consideration will be treated as part of a sale (including, in some instances, a “disguised sale”). In that case, VMS would be treated as having sold, in a taxable transaction, a portion of the Affiliated Contribution Properties to Aimco Properties, LLC in exchange for such cash or other consideration; the balance of the Affiliated Contribution Properties would, however, remain eligible for the tax-free contribution treatment described above. To the extent that limited partners receive cash in connection with the Affiliated Contribution, VMS will receive, in part, cash in the Affiliated Contribution, and the Affiliated Contribution will be treated, at least in part, as a taxable sale. Taxable

48

income recognized by VMS will pass through to the Partnerships, and from the Partnerships to the partners, and therefore will be taxable to the partners, including limited partners who elect to receive Common OP Units.

The disguised sale rules may also apply where VMS contributes property to Aimco Properties, LLC subject to one or more liabilities. If the liabilities are “non-qualified” liabilities, then VMS will be treated as receiving taxable disguised sale proceeds in an amount equal to the excess of VMS’s share of such liability immediately before the contribution over its share of such liability immediately after the contribution. If the liabilities are “qualified liabilities,” then VMS will not be treated as engaging in a disguised sale unless it receives, or is deemed to receive, some other item of cash or disguised sale consideration (including disguised sale consideration attributable to a reduction in VMS’s share of a non-qualified liability) in connection with such contribution.

Even if VMS does not recognize gain under the disguised sale rules with respect to a qualified liability that is assumed by Aimco Properties, LLC or otherwise encumbers property contributed to such partnership, VMS will recognize gain in connection with the deemed contribution of such property under the liability allocation rules if VMS’s share of such liability exceeds the amount of all Aimco Properties, LLC liabilities allocated to VMS as determined immediately after the transfer. Such excess is generally treated as a deemed distribution of cash to VMS from Aimco Properties, LLC which, in turn, is treated as a nontaxable return of capital to the extent of VMS’s adjusted tax basis in its Common OP Units and thereafter as gain.

No assurances can be given that the liabilities of VMS, the owner of the Properties, will be “qualified” liabilities under the disguised sale rules at the time of the Affiliated Contribution. Accordingly, no assurance can be given that all or a portion of any such liability will not be treated as taxable disguised sale proceeds deemed to be received by one or more limited partners of the Partnerships. However, at present Aimco management expects such liabilities to be “qualified.”

If VMS transfers property to Aimco Properties, LLC and less than all built-in gain or built-in loss is recognized, then Aimco Properties, LLC tax items must be specially allocated, for United States federal income tax purposes, in a manner such that the partners who receive Common OP Units in the Affiliated Contribution are charged with and must recognize the unrealized gain, or benefits from the unrealized loss, associated with the property at the time of the contribution. Treasury Regulations provide Aimco Properties, LLC with several alternative methods, and Aimco Properties, LLC may adopt any other reasonable method, to make such special allocations. The general partner of the Aimco Operating Partnership (the sole member of Aimco Properties, LLC), in its sole and absolute discretion and in a manner consistent with Treasury Regulations, will select and adopt a method for making such special allocations. In this regard, the general partner, while acting in its capacity as general partner of the Aimco Operating Partnership, is not required to take into account the tax consequences to the holders of Common OP Units of its action in such capacity and may elect a method for making special allocations that is less favorable to holders of Common OP Units than other methods. As a result of such special allocations, the amount of net taxable income allocated to limited partners that receive Common OP Units in the Affiliated Contribution may exceed the amount of cash distributions to which such partners are entitled.

In addition, there are a variety of transactions that Aimco Properties, LLC may in its sole discretion undertake following such contribution with respect to the contributed property or the debt securing such property that could cause the partners that receive Common OP Units in the Affiliated Contribution to recognize taxable gain, even though little or no cash is distributable to them as a result thereof. Such transactions include but are not limited to (i) the sale of a particular property of Affiliated Contribution Property, which could result in an allocation of gain only to those holders of Common OP Units who received Common OP Units in connection with the contribution of such Property (even if cash attributable to sale proceeds were distributed proportionately to all holders of Common OP Units); and (ii) a reduction in the nonrecourse debt allocable to Affiliated Contribution Property (because, among other events, such debt becomes a recourse liability or is paid off with cash flow, new equity, or proceeds of debt secured by other property of Aimco Properties, LLC), which would result in a deemed distribution of money and recognition of taxable gain to the holders of Common OP Units who received Common OP Units for such Affiliated Contribution Property as well as to the other holders of Common OP Units. The Aimco Operating Partnership Agreement grants the general partner broad authority to undertake such transactions and does not grant the holders of Common OP Units affected by these actions any rights to prevent the general partner from taking such actions. Even if the general partner of the Aimco Operating Partnership does not intend to sell or otherwise dispose

49

of contributed property or to reduce the debt, if any, securing such property within any specified time period after VMS transfers such property to Aimco Properties, LLC, it is possible that future economic, market, legal, tax or other considerations may cause Aimco Properties, LLC to dispose of the contributed property or to reduce its debt. In this regard, the Aimco Operating Partnership Agreement provides that the general partner, while acting in its capacity as general partner of the Aimco Operating Partnership, may, but is not required to, take into account the tax consequences to the holders of Common OP Units of its actions in such capacity. The general partner intends to make decisions in its capacity as general partner of the Aimco Operating Partnership so as to maximize the profitability of Aimco Properties, LLC as a whole, independent of the tax effects on individual holders of Common OP Units.

Tax Treatment Is Dependent on Partnership Status; Publicly Traded Partnership Risks.  An investment in the Aimco Operating Partnership depends on the classification of the Aimco Operating Partnership as a partnership for United States federal income tax purposes. No advance ruling has been or will be sought from the IRS as to the classification of the Aimco Operating Partnership as a partnership. No assurance can be given that the IRS will not challenge the status of the Aimco Operating Partnership as a partnership.

If a market for any OP Units develops and such Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” the Aimco Operating Partnership would be classified as a publicly traded partnership for United States federal income tax purposes. The Aimco Operating Partnership believes and currently intends to take the position that it should not be classified as a publicly traded partnership because (i) the OP Units are not traded on an established securities market and (ii) the Aimco Operating Partnership believes the OP Units should not be considered readily tradable on a secondary market or the substantial equivalent thereof. The determination of whether interests in a partnership are readily tradable on a secondary market or the substantial equivalent thereof, however, depends on various facts and circumstances (including facts that are not within the control of the Aimco Operating Partnership). Although regulations promulgated by the U.S. Treasury Department under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and an IRS pronouncement provide limited safe harbors, which, if satisfied, will prevent a partnership’s interests from being treated as readily tradable on a secondary market or the substantial equivalent thereof, the Aimco Operating Partnership may not have satisfied these safe harbors in a previous or current tax year. In addition, because the Aimco Operating Partnership’s ability to satisfy a safe harbor may involve facts that are not within its control, it is not possible to predict whether the Aimco Operating Partnership will satisfy a safe harbor in the current or a future tax year. Such safe harbors are not intended to be substantive rules for the determination of whether partnership interests are readily tradable on a secondary market or the substantial equivalent thereof, and consequently, the failure to meet these safe harbors will not necessarily cause the Aimco Operating Partnership to be treated as a publicly traded partnership. No assurance can be given, however, that the IRS will not assert that partnerships such as the Aimco Operating Partnership constitute publicly traded partnerships, or that facts and circumstances will not develop which could result in the Aimco Operating Partnership being treated as a publicly traded partnership.

If the Aimco Operating Partnership were classified as a publicly traded partnership, it would nevertheless not be taxable as a corporation as long as 90% or more of its gross income consists of “qualifying income.” In general, qualifying income includes interest, dividends, real property rents (as defined by section 856 of the Internal Revenue Code) and gain from the sale or disposition of real property. The Aimco Operating Partnership believes that more than 90% of its gross income consists of qualifying income and the Aimco Operating Partnership expects that more than 90% of its gross income in future tax years will consist of qualifying income. As such, even if the Aimco Operating Partnership were characterized as a publicly traded partnership, it would not be taxable as a corporation. If the Aimco Operating Partnership were characterized as a publicly traded partnership, however, each holder of Common OP Units would be subject to special rules under section 469 of the Internal Revenue Code. No assurance can be given that the actual results of the Aimco Operating Partnership’s operations for any one taxable year will enable it to satisfy the qualifying income exception.

If the Aimco Operating Partnership were classified as an association or publicly traded partnership taxable as a corporation (because it did not meet the qualifying income exception discussed above), it would be subject to tax at the entity level as a regular corporation and holders of Common OP Units would be subject to tax in the same manner as stockholders of a corporation. The classification of the Aimco Operating Partnership as an association or publicly traded partnership taxable as a corporation could also result in a substantial tax liability to holders of

50

Common OP Units. In addition, the Aimco Operating Partnership would be subject to United States federal income tax (and possibly additional state and local taxes) on its net income, determined without reduction for any distributions made to Common OP Unitholders, at regular United States federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to holders of Common OP Units, which reduction could also materially and adversely impact the value of the Common OP Units. In addition, the Aimco Operating Partnership’s items of income, gain, loss, deduction and expense would not be passed through to holders of Common OP Units, and holders of Common OP Units would not be subject to tax on the income earned by the Aimco Operating Partnership. Distributions received by a holder of Common OP Units from the Aimco Operating Partnership, however, would be treated as dividend income for United States federal income tax purposes, subject to tax at reduced rates applicable to dividends received by individuals and at ordinary income rates for taxpayers that are not individuals to the extent of current and accumulated earnings and profits of the Aimco Operating Partnership, and the excess, if any, as a nontaxable return of capital to the extent of the holder’s adjusted tax basis in his Aimco Operating Partnership interest (without taking into account partnership liabilities), and thereafter as gain from the sale of a capital asset. Classification of the Aimco Operating Partnership as an association or publicly traded partnership taxable as a corporation would mean that Aimco would not qualify as a REIT for United States federal income tax purposes, which would have a material adverse impact on Aimco. No assurances can be given that the IRS would not challenge the status of the Aimco Operating Partnership as a “partnership” which is not “publicly traded” for United States federal income tax purposes or that a court would not reach a result contrary to such positions. Accordingly, you are urged to consult your tax advisor regarding the classification and treatment of the Aimco Operating Partnership as a “partnership” for United States federal income tax purposes.

Limited Partners May Recognize a Tax Gain or Loss on Disposition of Common OP Units.  If a limited partner sells, exchanges or redeems Common OP Units, it will recognize gain or loss equal to the difference between the amount realized (including its share of Aimco Operating Partnership liabilities) and its adjusted tax basis in such Common OP Units, and the cash received may be substantially less than the resulting tax liability to the partner. Thus, prior Aimco Operating Partnership distributions in excess of cumulative net taxable income in respect of a Common OP Unit that decreased the partner’s tax basis in such Common OP Unit will, in effect, become taxable income if the Common OP Unit is sold at a price greater than the partner’s tax basis in such Common OP Units, even if the price is less than its original cost. A portion of the amount realized (whether or not representing gain) may be ordinary income.

The Tax Liability Associated with the Common OP Units Could Exceed the Cash Distributions Received on Such Common OP Units.  The limited partners who elected to receive Common OP Units as consideration for the Affiliated Contribution will be required to pay United States federal income tax on their allocable share of the Aimco Operating Partnership’s income, even if such partners receive no cash distributions from the Aimco Operating Partnership. No assurance can be given that holders of Common OP Units will receive cash distributions equal to the allocable share of taxable income from the Aimco Operating Partnership or even the tax liability resulting from that income. Further, upon the sale, exchange or redemption of any Common OP Units, or upon the special allocation at the liquidation of the Aimco Operating Partnership, such partners may incur a tax liability in excess of the amount of cash received.

The Ability to Deduct Losses Related to Common OP Units May Be Limited under Applicable Tax Laws.  The ability of limited partners to use their allocable share of losses, if any, from the Aimco Operating Partnership at the end of the taxable year in which the loss is incurred will be limited by specific provisions of the Internal Revenue Code.

Holders of Common OP Units Are Subject to Liabilities Arising from Audits of Tax Returns.  The Aimco Operating Partnership’s tax return may be audited, and any such audit could result in an audit of a Common OP Unitholder’s tax return as well as increased liabilities for taxes because of adjustments resulting from the audit. No assurance can be given that the Aimco Operating Partnership will not be audited by the IRS or various state authorities or that tax adjustments will not be made. Any adjustments in the Aimco Operating Partnership’s tax return will lead to adjustments in a Common OP Unitholder’s tax return and may lead to audits of a Common OP Unitholder’s tax return and adjustments of items unrelated to the Aimco Operating Partnership. The Common OP Unitholder would bear the cost of any expenses incurred in connection with an examination of its tax return.

51

State, Local and Other Tax Considerations May Affect an Investment in Common OP Units.  In addition to United States federal income taxes, the Aimco Operating Partnership and Common OP Unitholders may be subject to state, local and foreign taxation, and may be required to file tax returns, in various jurisdictions in which the Aimco Operating Partnership does business, owns property or resides. You are urged to consult your tax advisor regarding the United States federal, state, local and foreign tax consequences of an investment in Common OP Units.

Risks Related to an Investment in Aimco

Failure to Generate Sufficient Net Operating Income May Limit Aimco’s Ability to Pay Dividends.  Aimco’s ability to make payments to its investors depends on its ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Net operating income may be adversely affected by events or conditions beyond Aimco’s control, including:

•  the general economic climate;

•  competition from other apartment communities and other housing options;

•  local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;

•  changes in governmental regulations and the related costs of compliance;

•  increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;

•  changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing;

•  changes in interest rates and the availability of financing; and

•  the relative illiquidity of real estate investments.

If Aimco is Not Able Successfully to Acquire, Operate, Redevelop and Expand Properties, Its Results of Operations Will Be Adversely Affected.  The selective acquisition, redevelopment and expansion of properties are components of Aimco’s strategy. However, Aimco may not be able to complete transactions successfully in the future. Although Aimco seeks to acquire, operate, redevelop and expand properties only when such activities increase its net income on a per share basis, such transactions may fail to perform in accordance with its expectations. When Aimco redevelops or expands properties, it is subject to the risks that:

•  costs may exceed original estimates;

•  occupancy and rental rates at the property may be below its projections;

•  financing may not be available on favorable terms or at all;

•  redevelopment and leasing of the properties may not be completed on schedule; and

•  Aimco may experience difficulty or delays in obtaining necessary zoning, land-use, building, occupancy and other governmental permits and authorizations.

Aimco’s Existing and Future Debt Financing Could Render Aimco Unable to Operate, Result in Foreclosure on Its Properties or Prevent It From Making Distributions on Its Equity.  Aimco’s strategy is generally to incur debt to increase the return on its equity while maintaining acceptable interest coverage ratios. For the year ended December 31, 2005, Aimco had a ratio of free cash flow (net operating income less spending for capital replacements) to combined interest expense and preferred stock dividends of 1.4:1. Aimco’s organizational documents do not limit the amount of debt that it may incur, and Aimco has significant amounts of debt outstanding. Payments of principal and interest may leave Aimco with insufficient cash resources to operate its properties or pay distributions required to be paid in order to maintain its qualification as a REIT. Aimco is also subject to the risk that its cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If Aimco fails to make required payments of principal and

52

interest on secured debt, its lenders could foreclose on the properties securing such debt, which would result in loss of income and asset value to it. As of December 31, 2005, substantially all of the properties that Aimco owned or controlled were encumbered by debt.

Increases in Interest Rates Would Increase Aimco’s Interest Expense.  As of December 31, 2005, Aimco had approximately $2,010.5 million of variable-rate indebtedness outstanding. Of the total debt subject to variable interest rates, floating rate tax-exempt bond financing was $726.1 million. Floating rate tax-exempt bond financing is benchmarked against the BMA Index, which since 1981 has averaged 68.0% of 30-day LIBOR. If this relationship continues, an increase in the 30-day LIBOR, of 1% (0.68% in tax-exempt interest rates) would result in Aimco’s income before minority interests and cash flows being reduced by $17.8 million on an annual basis. This would be offset by variable rate interest income earned on certain assets, including cash and cash equivalents and notes receivable, as well as interest that is capitalized on a portion of this variable rate debt incurred in connection with redevelopment activities. Considering these offsets, the same increase in the 30-day LIBOR would result in Aimco’s income before minority interests being reduced by $8.9 million on an annual basis.

Covenant Restrictions May Limit Aimco’s Ability to Make Payments to Its Investors.  Some of Aimco’s debt and other securities contain covenants that restrict its ability to make distributions or other payments to its investors unless certain financial tests or other criteria are satisfied. Aimco’s credit facility provides, among other things, that Aimco may make distributions to its investors during any four consecutive fiscal quarters in an aggregate amount that does not exceed the greater of 95% of its funds from operations for such period or such amount as may be necessary to maintain Aimco’s REIT status. Aimco’s outstanding classes of preferred stock prohibit the payment of dividends on its Common Stock if Aimco fails to pay the dividends to which the holders of the preferred stock are entitled.

Aimco Depends on Distributions and Other Payments from Its Subsidiaries That They May Be Prohibited from Making to Aimco.  All of Aimco’s properties are owned, and all of its operations are conducted, by the Aimco Operating Partnership and its other subsidiaries. As a result, Aimco depends on distributions and other payments from its subsidiaries in order to satisfy its financial obligations and make payments to its investors. The ability of its subsidiaries to make such distributions and other payments depends on their earnings and may be subject to statutory or contractual limitations. As an equity investor in its subsidiaries, Aimco’s right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that Aimco is recognized as a creditor of such subsidiaries, its claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to Aimco’s claims.

Aimco May Be Subject to Litigation Associated with Partnership Acquisitions That Could Increase Its Expenses and Prevent Completion of Beneficial Transactions.  Aimco has engaged in, and intends to continue to engage in, the selective acquisition of interests in partnerships that own apartment properties. In some cases, Aimco has acquired the general partner of a partnership and then made an offer to acquire the limited partners’ interests in the partnership. In these transactions, Aimco may be subject to litigation based on claims that it, as the general partner, has breached its fiduciary duty to its limited partners or that the transaction violates the relevant partnership agreement or state law. Although Aimco intends to comply with its fiduciary obligations and the relevant partnership agreements, it may incur additional costs in connection with the defense or settlement of this type of litigation. In some cases, this type of litigation may adversely affect Aimco’s desire to proceed with, or its ability to complete, a particular transaction. Any litigation of this type could also have a material adverse effect on Aimco’s financial condition or results of operations.

The Marketplace for Insurance Coverage is Uncertain and in Some Cases Insurance Is Becoming More Expensive and More Difficult to Obtain.  The insurance market is characterized by volatility with respect to premiums, deductibles and coverage. Although Aimco makes use of many alternative methods of risk financing that enable it to insulate itself to some degree from variations in coverage and cost, sustained deterioration in insurance marketplace conditions may have a negative effect on its operating results.

The FBI Has Issued Alerts Regarding Potential Terrorist Threats Involving Apartment Buildings.  From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and

53

occupancy levels at Aimco’s properties. The effect that future terrorist activities or threats of such activities could have on Aimco’s business is uncertain and unpredictable. If Aimco incurs a loss at a property as a result of an act of terrorism, it could lose all or a portion of the capital it has invested in the property, as well as the future revenue from the property.

Aimco Depends on Its Senior Management.  Aimco’s success depends upon the retention of its senior management, including Terry Considine, Aimco’s chief executive officer and president. There are no assurances that Aimco would be able to find qualified replacements for the individuals who make up its senior management if their services were no longer available. The loss of services of one or more members of its senior management team could have a material adverse effect on its business, financial condition and results of operations. Aimco does not currently maintain key-man life insurance for any of its employees. The loss of any member of senior management could adversely affect its ability to pursue effectively its business strategy.

Affordable Housing Regulations May Limit the Opportunities at Some of Aimco’s Properties, Reducing Its Revenue and, in Some Cases, Causing Aimco to Sell Properties That it Might Otherwise Continue to Own.  Aimco owns an equity interest in certain affordable properties and manages for third parties and affiliates other properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by HUD or state housing finance agencies, typically provide mortgage insurance, favorable financing terms or rental assistance payments to the property owners. As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts. If permitted rents on a property are insufficient to cover costs, a sale of the property may become necessary, which could result in a loss of management fee revenue. Aimco usually needs to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted property. Aimco may not always receive such approval.

Laws Benefiting Disabled Persons May Result in Aimco’s Incurrence of Unanticipated Costs.  Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to Aimco’s properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although Aimco believes that its properties are substantially in compliance with present requirements, it may incur unanticipated expenses to comply with the ADA and the FHAA.

Aimco May Fail to Qualify as a REIT.  If Aimco fails to qualify as a REIT it may not be allowed a deduction for dividends paid to its stockholders in computing its taxable income, and Aimco will be subject to Federal income tax at regular corporate rates, including any applicable alternative tax. This would substantially reduce the funds available for payment to Aimco’s investors. Unless entitled to relief under certain provisions of the Internal Revenue Code, Aimco also would be disqualified from taxation as a REIT for the four years following the year during which Aimco ceased to qualify as a REIT. In addition, Aimco’s failure to qualify as a REIT would trigger the following consequences:

•  Aimco would be obligated to repurchase certain classes of its preferred stock; and

•  Aimco would be in default under its primary credit facilities and certain other loan agreements.

Aimco believes that it operates, and has always operated, in a manner that enables it to meet the requirements for qualification as a REIT for Federal income tax purposes. Aimco’s continued qualification as a REIT will depend on satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Aimco’s ability to satisfy the asset tests depends upon its analysis of the fair market values of its assets, some of which are not susceptible to a precise determination, and for which Aimco will not obtain independent appraisals. Aimco’s compliance with the REIT income and quarterly asset requirements also depends upon its ability to manage successfully the composition of its income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for Federal income tax purposes may be

54

uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that Aimco’s interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax or other considerations may cause Aimco to fail to qualify as a REIT, or Aimco’s Board of Directors may determine to revoke its REIT status.

REIT Distribution Requirements Limit Aimco’s Available Cash.  As a REIT, Aimco is subject to annual distribution requirements which limit the amount of cash Aimco may retain for other business purposes, including amounts to fund its growth. Aimco generally must distribute annually at least 90% of its net REIT taxable income, excluding any net capital gain, in order for its distributed earnings not to be subject to corporate income tax. Aimco intends to make distributions to its stockholders to comply with the requirements of the Internal Revenue Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require Aimco to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Internal Revenue Code.

Limits on Ownership of Shares in Aimco’s Charter May Result in the Loss of Economic and Voting Rights by Purchasers That Violate Those Limits.  Aimco’s charter limits ownership of Aimco Common Stock by any single stockholder (applying certain “beneficial ownership” rules under Federal securities laws) to 8.7% of the outstanding shares of Aimco Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also limits ownership of Aimco’s Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Aimco Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also prohibits anyone from buying shares of Aimco’s capital stock if the purchase would result in Aimco losing its REIT status. This could happen if a transaction results in fewer than 100 persons owning all of Aimco’s shares or results in five or fewer persons (applying certain attribution rules of the Internal Revenue Code) owning 50% or more of the value of all of Aimco’s shares. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Internal Revenue Code for REITs:

•  the transfer will be considered null and void;

•  Aimco will not reflect the transaction on its books;

•  Aimco may institute legal action to enjoin the transaction;

•  Aimco may demand repayment of any dividends received by the affected person on those shares;

•  Aimco may redeem the shares;

•  the affected person will not have any voting rights for those shares; and

•  the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by Aimco.

Aimco may purchase the shares held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:

•  may lose control over the power to dispose of such shares;

•  may not recognize profit from the sale of such shares if the market price of the shares increases;

•  may be required to recognize a loss from the sale of such shares if the market price decreases; and

•  may be required to repay to Aimco any distributions received from Aimco as a result of his or her ownership of the shares.

55

Aimco’s Charter May Limit the Ability of a Third Party to Acquire Control of Aimco.

The 8.7% ownership limit discussed above may have the effect of precluding acquisition of control of Aimco by a third party without the consent of Aimco’s board of directors. Aimco’s charter authorizes its board of directors to issue up to 510,587,500 shares of capital stock. As of September 30, 2006, 426,157,736 shares were classified as Class A Common Stock, of which 95,909,969 were outstanding, and 84,429,704 shares were classified as preferred stock, of which 33,794,962 were outstanding. Under Aimco’s charter, its board of directors has the authority to classify and reclassify any of Aimco’s unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as Aimco’s board of directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of Aimco, even if a change in control were in stockholders’ best interests.

Maryland Business Statutes May Limit the Ability of a Third Party to Acquire Control of Aimco.   As a Maryland corporation, Aimco is subject to various Maryland laws that may have the effect of discouraging offers to acquire Aimco and of increasing the difficulty of consummating any such offers, even if an acquisition would be in the best interests of Aimco stockholders. The Maryland General Corporation Law restricts mergers and other business combination transactions between Aimco and any person who acquires beneficial ownership of shares of its stock representing 10% or more of the voting power without the Aimco Board of Directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 662/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of Aimco’s capital stock that represent 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, Maryland law provides, among other things, that the board of directors has broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time and place for special meetings of the stockholders. In addition, Maryland law provides that corporations that:

•  have at least three directors who are not employees of the entity or related to an acquiring person; and

•  are subject to the reporting requirements of the Securities Exchange Act of 1934, may elect in their charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:

•  the corporation will have a staggered board of directors;

•  any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;

•  the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;

•  vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and

•  the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.

To date, Aimco has not made any of the elections described above.

NO RECOMMENDATION BY THE MANAGING GENERAL PARTNER

The Managing General Partner and Aimco Properties, LLC are affiliates of, and may be deemed to be under common control with, Aimco. Accordingly, the Managing General Partner has a substantial conflict of interest with respect to the proposed Affiliated Contribution, because Aimco Properties, LLC has an interest in obtaining the Affiliated Contribution Properties at a low price while the Partnerships have an interest in receiving the highest consideration possible. In addition, continuation of VMS could result in the Managing General Partner and its affiliates continuing to receive management fees from the Partnerships if the Transactions are not consummated as

56

described in this proxy statement-prospectus. Although the Managing General Partner is of the opinion that the Transactions described herein are fair to the Partnerships and the limited partners, as a result of these conflicts, the Managing General Partner does not make any recommendation as to whether or not limited partners should object to the Transactions.

THE TRANSACTIONS

On August 21, 2006, VMS entered into a Contribution Agreement with Aimco Properties, LLC under which VMS has agreed to complete the Affiliated Contribution, subject to certain conditions, including the absence of objections filed by limited partners owning more than 50% of the aggregate units of the Partnerships. The value of the consideration for each of the Affiliated Contribution Properties is equal to the greater of the appraised market values of the fee simple interest in such Properties based on appraisals dated April 2006 and updated in November and December, 2006 and internal valuations prepared at least annually by Aimco in connection with Aimco’s and VMS’s financial reporting process. These internal valuations were last updated February 2006 and were completed independently of the Affiliated Contribution. The Contribution Agreement was amended on January 16, 2007 to increase the purchase price based on the results of the updated appraisals. The limited partners of the Partnerships may elect to waive the right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead, with those that do not make an election receiving cash. Aimco and its affiliates which own limited partnership interests in the Partnerships currently intend to waive their right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units instead.

In addition, and as a condition to the Affiliated Contribution, VMS intends to sell the Unaffiliated Sale Properties to one or more third parties in one or more sales. On November 22, 2006, VMS entered into an agreement to sell Watergate Apartments to an unaffiliated third party for a total purchase price of $7,710,000. On November 28, 2006, VMS entered into an agreement to sell Shadowood Apartments to an unaffiliated third party for a total purchase price of $5,300,000. On December 4, 2006, VMS entered into agreements to sell Terrace Gardens and The Bluffs to unaffiliated third parties for total purchase prices of $7,200,000 and $9,650,000, respectively. On December 11, 2006, VMS entered into an agreement to sell Vista Village Apartments to an unaffiliated third party for a total purchase price of $7,250,000. On December 12, 2006, VMS entered into an agreement to sell Chapelle Le Grande to an unaffiliated third party for a total purchase price of $5,250,000. The terms of the two remaining Unaffiliated Sales are not yet defined, as purchase agreements have not been entered into. However, VMS has received offers at specific offer prices to purchase the two remaining Unaffiliated Sale Properties. The Unaffiliated Sale Properties are being marketed by VMS to unaffiliated third parties through arms-length negotiation. However, no Unaffiliated Sale will be completed if the purchase price for such Unaffiliated Sale Property does not exceed the Minimum Unaffiliated Sale Price.

VMS engaged CB Richard Ellis (“CBRE”) as the broker to market the Unaffiliated Sale Properties. The Managing General Partner selected CBRE based on its reputation in the industry and its ability to market multiple Properties in diverse markets. In the prior two years, CBRE has been paid approximately $4.4 million for broker services by the Aimco Operating Partnership and its affiliates. Except as set forth above, during the prior two years, no material relationship has existed between CBRE and VMS or the Aimco Operating Partnership or any of their affiliates. Prior to commencing marketing efforts for the Unaffiliated Sale Properties and consistent with CBRE’s standard operating procedure, CBRE provided estimates of value for each of the Unaffiliated Sale Properties which, at the time, VMS expected to use as a basis for establishing a minimum sales price for the Unaffiliated Sale Properties for purposes of notifying limited partners of the proposed sales and providing the opportunity to object as required by the Partnership Agreements. As noted elsewhere herein, the Managing General Partner ultimately decided to use 85% of (i) actual, arms-length negotiated purchase prices contained in purchase agreements entered into for such sales or (ii) the highest offer prices for those properties not yet subject to contract.

CBRE based its estimates of value upon a review of the operating performance for each Property on both an income and expense basis, including a review of monthly performance in each of the 12 trailing months and a review of annual operating performance on each basis during the most recently completed calendar years. In each case, CBRE specifically evaluated gross potential rent, net rental income, components of economic loss (vacancy,

57

concessions, employee/model units and bad debt), other income, utility reimbursement income, and operating expenses.

CBRE adjusted the various components of net rental income in order to reflect the growth currently reflected in the market, as demonstrated by recent bids made by competitive buying groups. CBRE’s evaluation of expenses was based on a review of the applicable Property’s historical performance of variable expenses, with appropriate adjustments made up or down to reflect the overall market. CBRE’s evaluation of utility expense reflected the trailing 12 month figures, while insurance estimates reflected average annual premiums in the appropriate market for each Property. CBRE also estimated a reassessment of real estate taxes for capitalization rate purposes in those markets where a reassessment could result in the near future upon a sale of the Property.

In preparing its estimate of value for each of the Unaffiliated Sale Properties, CBRE relied, without independent verification, on the accuracy and completeness of information supplied or otherwise made available to it by or on behalf of VMS. In arriving at the estimates of value, CBRE assumed that all information known to VMS and relative to the valuation had been accurately furnished and that there were no undisclosed leases, agreements, liens or other encumbrances affecting the use of the Properties.

Based on the foregoing analysis, CBRE provided the following estimates of value for each of the Unaffiliated Sale Properties:

Watergate Apartments	$	7,216,000
Shadowood Apartments	$	5,043,000
Terrace Gardens	$	7,335,000
The Bluffs	$	8,895,000
Vista Village Apartments	$	6,252,000
Chapelle Le Grande	$	5,089,000
North Park Apartments	$	9,942,000
Forest Ridge	$	16,980,000

You may obtain a full copy of the estimates of value provided by CBRE for the Unaffiliated Sale Properties upon request, without charge, by contacting the information agent at (800) 217-9608 (toll-free). Copies of the estimates of value for the Unaffiliated Sale Properties are also available for inspection and copying at the principal executive offices of VMS during regular business hours by any interested limited partner or his or her designated representative at his or her cost. In addition, a copy of the estimates of value has been filed with the SEC.

Upon closing, CBRE will be paid commissions totaling approximately $1,090,350, pursuant to a listing agreement with the Managing General Partner. Approximately $723,600 will be paid with respect to the six Properties currently under contract and approximately $366,750 will be paid with respect to the two remaining Properties. The Managing General Partner negotiated the foregoing commission rates taking into account market commission rates for single property sales and then negotiated a discount in light of the fact that eight properties were being marketed for sale.

By sending this proxy statement-prospectus to the limited partners of the Partnerships, the Managing General Partner is providing the limited partners with notice of the Transactions. VMS will not complete a Transaction if limited partners owning more than 50% of the aggregate units of the Partnerships give written notice of objection to that Transaction prior to          , 2007. The Managing General Partner currently anticipates that the Affiliated Contribution will be consummated no later than          , 2007. If one of the Transactions is not consummated, VMS will continue to own the Properties that were to be contributed or sold in that Transaction and remain responsible for the related mortgage debt, subject to the terms of any refinancing that may occur.

58

The following is a summary of the terms and conditions of the Contribution Agreement, which may be amended or superseded at any time and from time to time by the parties; provided, however, that if any amendment materially changes the terms or conditions of the Affiliated Contribution, the Managing General Partner will provide an extended opportunity for the unaffiliated limited partners to object to the Affiliated Contribution.

Consideration.  The consideration for the Affiliated Sale Properties is $230,078,260 (the “Consideration”), subject to adjustments as provided in the Contribution Agreement, allocated between the Properties based on the appraised values noted above in all cases other than the $19,028,260 valuation based on Aimco’s internal valuation for Buena Vista Apartments as follows:

Property	Consideration
Casa de Monterey	$	18,200,000
Buena Vista Apartments	$	19,028,260
Crosswood Park Apartments	$	15,750,000
Mountain View Apartments	$	30,800,000
Pathfinder Village Apartments	$	34,700,000
Scotchollow Apartments	$	67,800,000
The Towers of Westchester Park	$	43,800,000

VMS and the Partnerships are providing herewith an opportunity for limited partners to waive their right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead. The Aimco Operating Partnership has agreed to issue and deliver directly to each limited partner that provides such a waiver and election that number of Common OP Units equal to (i) the amount of the cash distribution waived by such limited partner divided by (ii) the average of the closing prices per share of the Class A Common Stock on the NYSE for the twenty consecutive trading days in which such shares are traded ending on the second trading day prior to but not including the Closing Date (as defined below), so long as such issuance and delivery does not violate any state securities laws. Limited partners are instructed to contact The Altman Group, Inc. with any direct questions or requests for information, including an estimate of Common OP Units issuable with respect to waivers of particular cash amounts, as of the most recent practicable date. Please see the information set forth under “HOW TO OBTAIN ADDITIONAL INFORMATION.” In the event such issuance and delivery is deemed to violate the securities laws of any state, the parties to the Contribution Agreement shall be entitled to disregard such waiver and election and proceed with the Contribution and resulting cash distributions as if such waiver and election had not been delivered by such limited partner.

At the consummation of the contribution of the Affiliated Contribution Properties (the “Closing”), the cash Consideration payable to VMS must be paid by Aimco Properties, LLC through escrow with Stewart Title Guaranty Company (the “Escrow Agent” or the “Title Insurer”) as of the date of Closing (the “Closing Date”).

Inspections.  Aimco Properties, LLC and its attorneys, architects, engineers, surveyors, and other representatives (collectively, “Consultants”) have been provided reasonable access to the Affiliated Contribution Properties and all records and files relating thereto for the purposes of inspections, preparations of plans, taking of measurements, making of surveys, making of appraisals, and generally for the ascertainment of the condition of the Affiliated Contribution Properties (collectively, the “Inspections”) concerning the Affiliated Contribution Properties; provided, however, that Aimco Properties, LLC may not, for any reason, terminate the Contribution Agreement as a result of such Inspections.

Affiliated Contribution Properties’ Materials.  Prior to the Closing Date, and to the extent in VMS’s actual possession and located at the Affiliated Contribution Properties, VMS agreed to make certain Affiliated Contribution Properties-related documents (the “Materials”) available for review by Aimco Properties, LLC. Aimco Properties, LLC has acknowledged receipt of the Materials prior to the effective date of the Contribution Agreement.

Affiliated Contribution Properties’ Contracts.  A list of Affiliated Contribution Properties’ contracts that Aimco Properties, LLC desires to terminate at closing is attached to the Contribution Agreement (the “Terminated Contracts”). The effective date of such termination after Closing will be subject to the express terms of the

59

Terminated Contracts (and, to the extent that the effective date of termination of any Terminated Contract is after the Closing Date, Aimco Properties, LLC will be deemed to have assumed all of VMS’s obligations under such Terminated Contract as of the Closing Date). If any Affiliated Contribution Properties contract cannot by its terms be terminated, it will be assumed by Aimco Properties, LLC and, to the extent that any Terminated Contract requires payment of a penalty or premium for cancellation, Aimco Properties, LLC will be solely responsible for the payment of the cancellation fees or penalties. If any Affiliated Contribution Properties contract to be assumed by Aimco Properties, LLC is assignable but requires the applicable vendor to consent to the assignment or assumption of the Affiliated Contribution Properties contract, then, prior to the Closing, Aimco Properties, LLC will be responsible for obtaining from each applicable vendor a consent to the assignment of the Affiliated Contribution Properties contract.

Permitted Exceptions.  The deed delivered pursuant to the Contribution Agreement will be subject to customary permitted exceptions such as written tenant leases for apartment units at the Property and covenants, conditions and restrictions on public record.

Closing Date.  Closing shall occur on such date as is mutually agreed upon by VMS and Aimco Properties, LLC; provided, however, that the Closing Date shall not occur any later than December 31, 2007.

Closing Prorations.  All normal and customarily proratable items, such as title insurance, will be prorated as of the Closing Date.

Closing Costs.  Aimco Properties, LLC must pay all recordation and documentary fees, stamps and taxes imposed on the deed, any premiums or fees required to be paid by Aimco Properties, LLC with respect to the Title Policy in excess of the base premium for the title policy, and one-half of the customary closing costs of the Escrow Agent. VMS will pay the base premium for the title policy and one-half of the customary closing costs of the Escrow Agent.

Closing Documents.  Each of VMS and Aimco Properties, LLC must deliver closing documents customary for transactions of this kind at Closing.

Partnership Representations and Warranties.  VMS has made customary representations and warranties, including, but not limited to, representations and warranties related to ownership, citizenship, legal proceedings and default, conflict or violation of contract or law, and the representations and warranties of VMS survive Closing for a period of six (6) months (the “Survival Period”). VMS shall have no liability under the Contribution Agreement after the Survival Period except to the extent that Aimco Properties, LLC has requested arbitration against VMS during the Survival Period for a misrepresentation. VMS’s liability for misrepresentations is capped at $250,000.00, and Aimco Properties, LLC cannot bring any related claim unless the claim for damage (either in the aggregate or as to any individual claim) by Aimco Properties, LLC exceeds $50,000.00.

Aimco Properties, LLC Representations and Warranties.  Aimco Properties, LLC has made customary representations and warranties, including, but not limited to, authority and enforceability, and the representations and warranties of Aimco Properties, LLC survive Closing for a period of six (6) months.

Pre-Closing Operations.  During the period of time from the Effective Date to the Closing Date, VMS shall manage, operate, maintain and repair the Affiliated Contribution Properties in the same manner as the Affiliated Contribution Properties have been managed, operated, maintained and repaired prior to the Effective Date.

Aimco Properties, LLC’s Conditions to Closing.  Aimco Properties, LLC’s obligation to close is subject to the fulfillment of the following conditions precedent:

(a) Each of VMS’s representations and warranties must be true and correct as of the Closing Date;

(b) VMS must have performed each of the covenants, agreements and conditions to be performed by VMS prior to or as of the Closing Date; and

(c) if necessary, VMS shall have obtained written consent to the Transaction from the holders of the mortgage indebtedness encumbering the Affiliated Contribution Properties.

60

If any condition set forth in clause (a) or (b) is not met, Aimco Properties, LLC may (i) terminate Aimco Properties, LLC’s obligations under the Contribution Agreement, (ii) complete the Closing notwithstanding the unsatisfied condition, or (iii) adjourn the Closing to a date not later than thirty (30) days after the scheduled Closing Date, during which period VMS shall use its reasonable efforts to satisfy any unsatisfied conditions within VMS’s reasonable power to satisfy.

Brokers.  VMS and Aimco Properties, LLC have each represented and warranted to the other that it has not utilized the services of any other real estate broker, sales person or finder in connection with the Contribution Agreement, and each party agreed to indemnify, defend and hold harmless the other party from and against all losses relating to brokerage commissions and finder’s fees arising from or attributable to the acts or omissions of the indemnifying party.

Aimco Properties, LLC Default.  If Aimco Properties, LLC, without the right to do so and in default of its obligations under the Contribution Agreement, fails to complete the Closing, VMS shall have the right to terminate the Contribution Agreement by written notice to Aimco Properties, LLC whereupon neither party shall have any further rights or obligations under the Contribution Agreement except for those that expressly survive termination of the Contribution Agreement.

VMS Default.  If VMS, without the right to do so and in default of its obligations under the Contribution Agreement, fails to complete the Closing, Aimco Properties, LLC shall have the right either to terminate the Contribution Agreement by written notice to VMS, whereupon neither party shall have any further rights or obligations under the Contribution Agreement except for those that expressly survive termination of the Contribution Agreement, or to seek specific performance of VMS’s obligations under the Contribution Agreement. VMS will not be obligated to close (i) if, as provided by the partnership agreement, limited partners owning more than 50% of the aggregate units of Portfolio I and Portfolio II give timely written notice of objection of the Affiliated Contribution or (ii) if the Unaffiliated Sales have not been closed. Aimco Properties, LLC waives any right to any and all other remedies for VMS’s breach of the Contribution Agreement permitted by law or in equity against VMS or any of its affiliates, parent and subsidiary entities, successors, assigns, partners, managers, members, employees, officers, directors, trustees, shareholders, counsel, representatives, or agents, including any right to damages.

Casualty.  If any of the Affiliated Contribution Properties are damaged or destroyed by fire or other casualty prior to closing, and the cost of repair is more than $500,000.00, then VMS must notify Aimco Properties, LLC in writing of such damage or destruction (the “Damage Notice”). Within thirty (30) days after Aimco Properties, LLC’s receipt of the Damage Notice, Aimco Properties, LLC may elect at its option to terminate the Contribution Agreement. If Aimco Properties, LLC fails to terminate the Contribution Agreement, (i) any deductibles and the net proceeds of any insurance with respect to the Affiliated Contribution Properties paid to VMS between the date of the Contribution Agreement and the Closing Date and not used by VMS for repairs to the Affiliated Contribution Properties in connection with such casualty shall be paid to Aimco Properties, LLC at the time of Closing, and (ii) all unpaid claims and rights in connection with losses to the Affiliated Contribution Properties shall be assigned to Aimco Properties, LLC at Closing without in any manner affecting the Consideration. If any of the Affiliated Contribution Properties are damaged or destroyed by fire or other casualty prior to the Closing, and the cost of repair is less than $500,000.00, the contribution will be closed in accordance with the terms of the Contribution Agreement, and VMS will make such repairs to the extent of any recovery from insurance carried on the Affiliated Contribution Properties if they can be reasonably effected before the Closing. If VMS is unable to effect such repairs, then at Closing, Aimco Properties, LLC shall be paid (i) any deductibles and the net proceeds of any insurance with respect to the Affiliated Contribution Properties paid to VMS between the date of the Contribution Agreement and the Closing Date and not used by VMS for repairs to the Affiliated Contribution Properties in connection with such casualty and (ii) all unpaid claims and rights in connection with losses to the Affiliated Contribution Properties shall be assigned to Aimco Properties, LLC at Closing without in any manner affecting the Consideration.

Condemnation.  If at any time prior to the Closing Date, any pending or threatened condemnation or eminent domain proceeding in connection with the Affiliated Contribution Properties (a “Taking”) affects all or any part of the Affiliated Contribution Properties, if any proceeding for a Taking is commenced, or if written notice of the contemplated commencement of a Taking is given, VMS shall promptly give written notice (“Taking Notice”)

61

thereof to Aimco Properties, LLC. Aimco Properties, LLC shall have the right, at its sole option, of terminating the Contribution Agreement by written notice to VMS within thirty (30) days after receipt by Aimco Properties, LLC of the Taking Notice. If Aimco Properties, LLC does not terminate the Contribution Agreement, the Consideration shall be reduced by the total amount of any awards or damages received by VMS and VMS shall, at Closing, be deemed to have assigned to Aimco Properties, LLC all of VMS’s right, title and interest in and to any awards or damages to which VMS may have become entitled or may thereafter be entitled by reason of any exercise of the power of eminent domain or condemnation with respect to or for the Taking of the Affiliated Contribution Properties or any portion thereof.

Appraisal Rights.  Limited partners are not entitled to statutory appraisal rights permitting them to seek a judicial determination of the value of their Partnership interests under applicable law, in lieu of accepting the distributions resulting from the Transactions. Pursuant to the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC have provided each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the statutory dissenters’ appraisal rights that a limited partner would have were it a shareholder in a corporate merger under the corporation laws of the state of the Partnerships’ organization. See “APPRAISAL RIGHTS.” A description of the appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this proxy statement-prospectus as Annex C.

Assignability.  Aimco Properties, LLC shall have the absolute right to assign the Contribution Agreement and its rights thereunder and any assignee of Aimco Properties, LLC shall be entitled to exercise all of the rights and powers of Aimco Properties, LLC thereunder.

Governing Law and Venue.  The laws of the State of Illinois govern the validity, construction, enforcement, and interpretation of the Contribution Agreement. Subject to the dispute resolution procedures set forth in the Contribution Agreement, all claims, disputes and other matters in question arising out of or relating to the Contribution Agreement must be decided by proceedings instituted and litigated in a court of competent jurisdiction in that state, and the parties expressly consented to the venue and jurisdiction of such court.

Amendments.  The Contribution Agreement cannot be amended, altered, changed, modified, supplemented or rescinded in any manner except by a written contract executed by all of the parties.

No Personal Liability of Officers, Trustees or Directors of VMS’s Partners.  Aimco Properties, LLC agreed that none of VMS, its affiliates, parent and subsidiary entities, successors, assigns, partners, managers, members, employees, officers, directors, trustees, shareholders, counsel, representatives, and agents shall have any personal liability under the Contribution Agreement or any document executed in connection with the transactions contemplated by the Contribution Agreement.

Termination Right.  The Contribution Agreement may be terminated at any time prior to the Closing Date (a) by mutual written consent of VMS and Aimco Properties, LLC, or (b) by either VMS or Aimco Properties, LLC, by written notice to the non-terminating party: (i) if any action restraining, enjoining or otherwise prohibiting consummation of the Transaction shall be threatened by any party; or (ii) the terminating party reasonably determines it is necessary to terminate the Contribution Agreement in order to satisfy its fiduciary obligations to its investors. In the event of such a termination of the Contribution Agreement, the Contribution Agreement shall become void and of no effect with no liability on the part of any party thereto, except for any obligations that expressly survive termination of the Contribution Agreement.

The Affiliated Contribution Properties are as follows:

•  Casa de Monterey, a 144-unit complex in Norwalk, California. Based on the estimates of the Managing General Partner, Casa de Monterey is currently in need of $1,035,240 in capital expenditures to, among other things, repair north wall fence and unit patio fences, add lighting in parking areas, replace natural gas lines, repair a swimming pool deck, repair sidewalks, replace wood walkway columns, replace all catwalks, treat for termites, replace portion of roof, repair roof drains, repair carport footing and replace carport fascia and post, replace hot water boilers, paint the exteriors, replace exterior wooden trim, stripe parking lot, stucco repairs, replace pool furniture, install area drains at mailboxes, replace HVAC units, replace sliding glass doors, and complete refurbishment of unit interiors. Casa de Monterey is encumbered by a senior mortgage

62

loan having an aggregate unpaid balance of approximately $3,656,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $3,479,000.

•  Buena Vista Apartments, a 92-unit complex in Pasadena, California. Based on the estimates of the Managing General Partner, Buena Vista Apartments is currently in need of $402,645 in capital expenditures to, among other things, repair subfloors, replace elevator controllers and code, replace hot water boilers, clear sanitary sewer lines, add lighting in parking areas, replace mailboxes, resurface a swimming pool, repair sidewalks, stripe parking lot, repair gutters and downspouts, replace HVAC and forced air units, upgrade kitchen and bathroom outlets, replace pool furniture, replace sliding glass doors/screens, and complete refurbishment of unit interiors. Buena Vista Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $4,386,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $4,260,000.

•  Crosswood Park Apartments, a 180-unit complex in Citrus Heights, California. Based on the estimates of the Managing General Partner, Crosswood Park is currently in need of $4,452,299 in capital expenditures to, among other things, replace roof, replace and repair perimeter fencing, replace site lighting, replace landscaping, replace site signage and building numbers, repair water features, repair sidewalks, repair carports, repair wood balconies and stair rails, repair entry landings, replace in-unit laundry room doors, repair/replace wooden siding, replace gutters and downspouts, replace pool furniture, treat for termites, replace fitness equipment, repair parking area paving, stripe parking lot, replace HVAC and forced air units, replace unit hot water heaters, upgrade kitchen and bathroom outlets, replace sliding glass doors/screens, and complete refurbishment of unit interiors. Crosswood Park is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $4,930,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $4,788,000.

•  Mountain View Apartments, a 168-unit complex in San Dimas, California. Based on the estimates of the Managing General Partner, Mountain View Apartments is currently in need of $1,374,679 in capital expenditures to, among other things, replace roofs, replace carport structures, replace hot water boiler, repair south block wall, construct retaining wall, add lighting in parking areas, clear sanitary sewer lines, repair area drains, repair landscape irrigation, resurface and repair a swimming pool and spa, repair sidewalks, replace pool fence, replace playground equipment, replace pool furniture, treat for termites, replace exterior wooden trim, stripe parking lot, replace HVAC and forced air units, upgrade kitchen and bathroom outlets, and complete refurbishment of unit interiors. Mountain View Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $6,338,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $6,154,000.

•  Pathfinder Village Apartments, a 246-unit complex in Fremont, California. Based on the estimates of the Managing General Partner, Pathfinder Village is currently in need of $4,377,737 in capital expenditures to, among other things, replace roofs, repair roof deck and roof framing, replace and repair perimeter fencing, replace elevators, replace site lighting, paint the exteriors, replace landscaping, replace site signage and building numbers, repair/replace asphalt paving, repair retaining walls, replace water recirculation piping system, clear sanitary sewer lines, repair storm sewer piping, repair swimming pool, replace/repair sidewalks, resurface decking, repair/replace wood balconies and framing, replace fitness equipment, replace balcony railings, replace stair rails, repair stair treads and stringers, conduct full termite remediation, replace gutters and downspouts, repair carports, refurbish and repair laundry rooms, repair utility panel boxes, replace hot water boilers, stripe parking lot, replace AC units, upgrade kitchen and bathroom outlets, and complete refurbishment of unit interiors. Pathfinder Village is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $12,030,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $3,041,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $11,576,000.

•  Scotchollow Apartments, a 418-unit complex in San Mateo, California. Based on the estimates of the Managing General Partner, Scotchollow is currently in need of $6,771,062 in capital expenditures to, among other things, replace roofs, repair roof deck and roof framing, repair fencing, replace elevators, replace site

63

lighting, paint the exteriors, replace landscaping and repair landscape irrigation, replace site signage and building numbers, resurface creek and replace pumps, replace asphalt walkways with concrete, repair structural damage to buildings caused by sinkholes, refurbish perimeter carports and convert into garage units, to clear sanitary sewer lines, repair water recirculation piping, resurface and repair swimming pools and spas, repair sidewalks, repair/replace wood balconies, balcony railings, stair rails, stair treads and stringers, treat for termites, replace fitness equipment, replace gutters and downspouts, replace hot water boilers, stripe and power wash parking lot, replace AC units, upgrade kitchen and bathroom outlets, and complete refurbishment of unit interiors. Scotchollow is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $26,036,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $8,961,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $25,054,000.

•  The Towers of Westchester Park, a 303-unit complex in College Park, Maryland. Based on the estimates of the Managing General Partner, The Towers of Westchester Park is currently in need of $872,328 in capital expenditures to, among other things, clear sanitary sewer lines, repair a swimming pool, repair sidewalks, replace gutters and downspouts, upgrade electrical panels, repair parking area paving, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. The Towers of Westchester Park is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $10,730,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $10,420,000.

The Unaffiliated Sale Properties are as follows:

•  North Park Apartments, a 284-unit complex in Evansville, Indiana. Based on the estimates of the Managing General Partner, North Park Apartments is currently in need of $4,670,980 in capital expenditures to, among other things, repair add lighting in parking areas, clear sanitary sewer lines, repair a swimming pool, replace gutters and downspouts, upgrade electrical panels, repair parking area paving, repair a storm drainage system, resurface tennis courts, trim trees, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. North Park Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $5,587,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $2,903,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $5,376,000.

•  Chapelle Le Grande, a 105-unit complex in Merrillville, Indiana. Based on the estimates of the Managing General Partner, Chapelle Le Grande is currently in need of $487,171 in capital expenditures to, among other things, repair fencing, add lighting in parking areas, clear sanitary sewer lines, repair a swimming pool, repair sidewalks, repair a wood balcony and stair rails, replace gutters and downspouts, repair roofs, upgrade electrical panels, repair parking area paving, resurface tennis courts, trim trees, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. Chapelle Le Grande is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $2,867,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $1,289,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $2,759,000.

•  Terrace Gardens, a 126-unit complex in Omaha, Nebraska. Based on the estimates of the Managing General Partner, Terrace Gardens is currently in need of $3,518,890 in capital expenditures to, among other things, repair fencing, clear sanitary sewer lines, repair a swimming pool, repair sidewalks, repair a wood balcony and stair rails, replace gutters and downspouts, repair roofs, upgrade electrical panels, repair parking area paving, repair a storm drainage system, resurface tennis courts, trim trees, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. Terrace Gardens is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $3,968,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid

64

balance of approximately $1,469,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $3,818,000.

•  Forest Ridge Apartments, a 278-unit complex in Flagstaff, Arizona. Based on the estimates of the Managing General Partner, Forest Ridge Apartments is currently in need of $1,175,736 in capital expenditures to, among other things, repair fencing, add lighting in parking areas, clear sanitary sewer lines, repair a swimming pool, repair sidewalks, repair a wood balcony and stair rails, treat for termites, replace gutters and downspouts, repair roofs, upgrade electrical panels, repair parking area paving, repair a storm drainage system, trim trees, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. Forest Ridge Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $5,272,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $361,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $5,073,000.

•  The Bluffs, a 137-unit complex in Milwaukee, Oregon. Based on the estimates of the Managing General Partner, The Bluffs is currently in need of $630,921 in capital expenditures to, among other things, repair fencing, add lighting in parking areas, clear sanitary sewer lines, repair a swimming pool, repair sidewalks, repair a wood balcony and stair rails, replace gutters and downspouts, repair roofs, upgrade electrical panels, repair parking area paving, trim trees, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. The Bluffs is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $3,304,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $1,434,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $3,202,000.

•  Watergate Apartments, a 140-unit complex in Little Rock, Arkansas. Based on the estimates of the Managing General Partner, Watergate Apartments is currently in need of $775,600 in capital expenditures to, among other things, add lighting in parking areas, repair a swimming pool, repair sidewalks, replace gutters and downspouts, repair roofs, upgrade electrical panels, replace windows, resurface decks, and upgrade kitchen and bathroom outlets. Watergate Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $2,590,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $811,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $2,492,000.

•  Shadowood Apartments, a 120-unit complex in Monroe, Louisiana. Based on the estimates of the Managing General Partner, Shadowood Apartments is currently in need of $380,745 in capital expenditures to, among other things, add lighting in parking areas, clear sanitary sewer lines, repair a swimming pool, repair roofs, upgrade electrical panels, repair a storm drainage system, replace windows, resurface decks, and upgrade kitchen and bathroom outlets. Shadowood Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $2,012,000 as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $1,936,000.

•  Vista Village Apartments, a 220-unit complex in El Paso, Texas. Based on the estimates of the Managing General Partner, Vista Village Apartments is currently in need of $1,174,464 in capital expenditures to, among other things, repair chain link fencing, add lighting in parking areas, repair a swimming pool, repair sidewalks, repair wood fences, repair a wood balcony and stair rails, treat for termites, repair roofs, upgrade electrical panels, repair parking area paving, repair a storm drainage system, replace windows, repair and replace balconies, resurface decks, and upgrade kitchen and bathroom outlets. Vista Village Apartments is encumbered by a senior mortgage loan having an aggregate unpaid balance of approximately $2,968,000 and a junior mortgage loan payable to an affiliate of the Aimco Operating Partnership, having an aggregate unpaid balance of approximately $1,423,000, each as of September 30, 2006. The principal balance due at maturity for the senior mortgage is approximately $2,856,000.

65

In addition to the mortgage indebtedness for each Property noted above and the other indebtedness described elsewhere herein, the aggregate amount of all capital expenditure needs noted above is $32,100,498 as of December 31, 2005.

PROCEDURE FOR ELECTION OF AFFILIATED CONTRIBUTION CONSIDERATION

Limited partners who desire to waive their right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating partnership instead should complete, sign, date and deliver the Consideration Election Form included herewith to the Information Agent by mail in the self-addressed, postage-paid envelope enclosed for that purpose by overnight courier or by facsimile at the address or facsimile number set forth on the Consideration Election Form prior to 5:00 P.M., New York City time, on          , 2007, all in accordance with the instructions contained therein. A limited partner may change an election previously made by completing, signing, dating and delivering a revised Consideration Election Form, as specified above, prior to 5:00 P.M., New York City time, on          , 2007.

APPROVALS REQUIRED

Partnership Approvals

This proxy statement-prospectus is the Managing General Partner’s written notice to the limited partners of the Partnerships of the Transactions. As provided in the joint venture and partnership agreements, VMS will not complete a Transaction if limited partners owning more than 50% of the aggregate units of the Partnerships object to such Transaction by providing written notice to the Managing General Partner by          , 2007.

Other Approvals

The Managing General Partner intends to solicit any lender consents that may be required in connection with the Transactions. The Transactions are conditioned on obtaining any such lender consents that may be necessary.

PROCEDURE FOR OBJECTING TO A TRANSACTION

LIMITED PARTNERS WHO DESIRE TO OBJECT TO ONE OF THE TRANSACTIONS SHOULD DO SO BY COMPLETING AND SIGNING, DATING AND DELIVERING THE NOTICE OF OBJECTION INCLUDED HEREWITH TO THE INFORMATION AGENT BY MAIL IN THE SELF-ADDRESSED, POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE, BY OVERNIGHT COURIER OR BY FACSIMILE AT THE ADDRESS OR FACSIMILE NUMBER SET FORTH ON THE NOTICE OF OBJECTION, ALL IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND THEREIN.

All Notices of Objection that are properly completed, signed and delivered to the information agent and not properly revoked prior to          , 2007 (the “Expiration Date”), will be given effect in accordance with the specifications thereof. See “Revocation of Instructions” below.

Notices of Objection must be executed in exactly the same manner as the name(s) in which ownership of the partnership interest is registered. If the partnership interest to which a Notice of Objection relates is held by two or more joint holders, all such holders should sign the Notice of Objection. If a Notice of Objection is signed by a trustee, partner, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary, agency or representative capacity, such person must so indicate when signing and submit with the Notice of Objection evidence satisfactory to the Partnership of authority to execute the Notice of Objection.

The execution and delivery of a Notice of Objection will not affect a limited partner’s right to sell or transfer its partnership interest. All Notices of Objection received by the information agent (and not properly revoked) prior to the Expiration Date will be effective and binding on transferees notwithstanding a record transfer of such partnership interest by the transferor limited partner subsequent to the delivery of the Notice of Objection, unless the transferee limited partner revokes such Notice of Objection prior to 5:00 p.m., New York City time, on the Expiration Date by following the procedures set forth under “Revocation of Instructions” below.

66

All questions as to the validity, form and eligibility (including time of receipt) regarding Notices of Objection will be determined by the Managing General Partner in its sole discretion, which determination will be conclusive and binding. The Managing General Partner reserves the right to reject any or all Notices of Objection that are not in proper form. The Managing General Partner also reserves the right to waive any defects, irregularities or conditions of delivery as to particular Notices of Objection. Unless waived, all such defects or irregularities in connection with the deliveries of Notices of Objection must be cured within such time as the Managing General Partner determines. Neither the Managing General Partner nor any of its affiliates or any other persons shall be under any duty to give any notification of any such defects, irregularities or waivers, nor shall any of them incur any liability for failure to give such notification. Deliveries of Notices of Objection will not be deemed to have been made until any irregularities or defects therein have been cured or waived. The interpretations of the terms and conditions of this proposal by the Managing General Partner shall be conclusive and binding.

Revocation of Instructions

Any limited partner who has delivered a Notice of Objection to the information agent may revoke the instructions set forth in such Notice of Objection by delivering to the information agent a written notice of revocation prior to 5:00 p.m., New York City time, on the Expiration Date. In order to be effective, a notice of revocation of the instructions set forth in a Notice of Objection must (i) contain the name of the person who delivered the Notice of Objection, (ii) be in the form of a written notice delivered to the information agent stating that the prior Notice of Objection is revoked, (iii) be signed by the limited partner in the same manner as the original signature on the Notice of Objection, and (iv) be received by the information agent prior to 5:00 p.m. New York City time, on the Expiration Date at one of its addresses or fax number set forth on the Notice of Objection. A purported notice of revocation that lacks any of the required information, is dispatched to an improper address or telephone number or is not received in a timely manner will not be effective to revoke the instructions set forth in a Notice of Objection previously given. A revocation of the instructions set forth in a Notice of Objection can only be accomplished in accordance with the foregoing procedures. NO LIMITED PARTNER MAY REVOKE THE INSTRUCTIONS SET FORTH IN A NOTICE OF OBJECTION AFTER 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

PLANS AFTER THE TRANSACTIONS ARE CONSUMMATED

If the Transactions are consummated, with seven Properties being contributed to Aimco Properties, LLC and eight being sold to one or more third parties, VMS will no longer own and operate any Properties. Therefore, VMS will make the distributions discussed elsewhere herein and dissolve in accordance with the terms of its joint venture agreement. Similarly, because interests in the joint venture are the sole assets of the Partnerships, the Partnerships will be dissolved in accordance with the terms of their respective partnership agreements.

Upon dissolution of VMS, the Managing General Partner intends to file a notice with the SEC that will result in a termination of VMS’s obligation to file annual, quarterly and other reports with the SEC pursuant to the Exchange Act. The Managing General Partner has determined that VMS is incurring approximately $87,000 in administrative and accounting expenses annually relating to the preparation and filing of periodic reports for VMS with the SEC. Upon completion of the disposition of the Properties, VMS will no longer incur these expenses.

VMS AND THE PARTNERSHIPS

VMS

VMS was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement dated September 27, 1984, between Portfolio I and Portfolio II. Its primary business is real estate ownership and related operations. VMS was formed for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash distributions to its partners. Effective December 12, 1997, the managing general partner of each of the Partnerships was transferred from VMS Realty Investment, Ltd. (formerly VMS Realty Partners) to MAERIL, Inc., a wholly-owned subsidiary of MAE GP Corporation and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP Corporation was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective

67

October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into Aimco. Thus, the Managing General Partner is now a wholly-owned subsidiary of Aimco.

VMS originally acquired 51 residential apartment properties with funds raised by offering units in the Partnerships. Prior to the Managing General Partner becoming a wholly-owned subsidiary of Aimco, VMS filed for Chapter 11 bankruptcy protection and 39 of VMS’s properties were foreclosed. Of the 51 properties that VMS originally acquired, four were foreclosed prior to 1993. In February 1991, VMS filed for Chapter 11 bankruptcy protection. The VMS plan of reorganization became effective in September 1993. Under the plan of reorganization, 19 of the VMS properties were foreclosed in 1993, four properties were foreclosed in 1994, five properties were foreclosed in 1995 and two properties were foreclosed in 1996. VMS sold two properties during 1996. VMS continues to own and operate 15 of the remaining apartment complexes which are the Properties being contributed and sold as described in the proxy statement-prospectus. The Managing General Partner seeks to maximize the operating results and, ultimately, the net realizable value of each of VMS’s holdings in order to achieve the best possible return for its investors and evaluates them periodically to determine the most appropriate strategy for each of the assets.

The Partnerships and the VMS Properties

The general partners of VMS are Portfolio I and Portfolio II. Portfolio I owns a 70.69% participation interest in VMS and Portfolio II owns a 29.31% participation interest in VMS. The Managing General Partner of the Partnerships is a subsidiary of Aimco. An affiliate of the Aimco Operating Partnership serves as manager of the Properties. There are currently 644 units of Portfolio I and 267 units of Portfolio II issued and outstanding, which are held of record by 669 and 257 limited partners, respectively.

The following chart represents the organizational structure of the VMS Related Parties:

VMS’s investment portfolio currently consists of the following 15 residential apartment complexes: Buena Vista, a 92-unit complex in Pasadena, California; Casa de Monterey, a 144-unit complex in Norwalk, California; Crosswood Park, a 180-unit complex in Citrus Heights, California; Mountain View, a 168-unit complex in

68

San Dimas, California; Pathfinder Village, a 246-unit complex in Fremont, California; Scotchollow, a 418-unit complex in San Mateo, California; The Bluffs, a 137-unit complex in Milwaukee, Oregon; Vista Village, a 220-unit complex in El Paso, Texas; Chapelle Le Grande, a 105-unit complex in Merrillville, Indiana; Shadowood, a 120-unit complex in Monroe, Louisiana; The Towers of Westchester Park, a 303-unit complex in College Park, Maryland; Terrace Gardens, a 126-unit complex in Omaha, Nebraska; North Park Apartments, a 284-unit complex in Evansville, Indiana; Watergate Apartments, a 140-unit complex in Little Rock, Arkansas; and Forest Ridge, a 278-unit complex in Flagstaff, Arizona.

VMS’s, the Partnerships’ and the Managing General Partner’s principal executive offices are located at 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and their phone number is (864) 239-1029.

For additional information about the Partnerships and VMS, please refer to the VMS Annual Report on Form 10-K for the year ended December 31, 2005, which is incorporated herein by reference, particularly Item 2 of the Form 10-K, which contains detailed information regarding the Properties, including mortgages, rental rates and taxes. See “GENERAL INFORMATION.”

Property Management

The Properties are managed by an affiliate of Aimco Properties, LLC. Pursuant to the management agreement between the property manager and VMS, the property manager operates the Properties, establishes rental policies and rates, and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors.

Investment Objectives and Policies; Sale or Financing of Investments

Under each Partnership’s agreement of limited partnership, neither Partnership is permitted to raise new equity or reinvest cash in new properties. Consequently, the Partnerships are limited in their ability to expand their investment portfolio or make improvements to properties through additional equity investments. Each Partnership will terminate on December 31, 2030, unless earlier dissolved. The terms of the senior mortgages currently encumbering the Properties contemplate the payment of an agreed valuation amount of $110,000,000 (approximately $12,763,000 of which has already been repaid) for such indebtedness, which is less than the applicable face amount of $152,225,000, if repayment occurs after January 1, 2007 and on or prior to January 1, 2008, the maturity date. If a default occurs with respect to a particular mortgage and that mortgage is subsequently repaid prior to January 1, 2008, an additional prepayment penalty of not less than 1% of the agreed valuation amount would also be owed. In any event, if any of the mortgages are not paid on or before January 1, 2008, then the full face amount of that mortgage, rather than the agreed valuation amount, becomes due.

Generally, VMS is authorized to acquire, develop, improve, own and operate its Properties as an investment and for income producing purposes. The investment portfolio of VMS is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of the Partnerships or the assets initially contributed to VMS by the limited partners of the Partnerships, as well as the debt financing obtained by VMS within the established borrowing restrictions.

An investment in each Partnership is a finite life investment, with the partners to receive regular cash distributions out of such Partnership’s distributable cash flow, if available, and to receive cash distributions upon liquidation of real estate investments, if available.

In general, the Managing General Partner evaluates the Properties by considering various factors, such as the partnership’s financial position and real estate and capital markets conditions. The Managing General Partner monitors each Property’s specific locale and sub-market conditions, evaluating current trends, competition, new construction and economic changes. The Managing General Partner oversees each asset’s operating performance and periodically evaluates the physical improvement requirements. In addition, the financing structure for each Property, including any prepayment penalties, tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the Managing General Partner to sell, refinance, upgrade with capital improvements or hold a particular Property.

69

The Properties have in the past needed, and currently need, significant capital expenditures to maintain or improve their habitability and thereby maintain or improve rents and occupancy rates. VMS does not have sufficient funds to pay for these capital expenditures, and the Managing General Partner has been unable to obtain favorable third-party loans to finance these capital expenditures due to the borrowing and prepayment restrictions imposed by the existing senior mortgages. The Partnerships’ partnership agreements permit the Managing General Partner itself to make loans to VMS at a specified rate under certain circumstances, but the senior and junior mortgages encumbering each of the Properties require that all property revenue, including proceeds from loans made by the Managing General Partner, be applied, monthly, to a closed, strictly specified order of priorities. As a result, proceeds from loans made by the Managing General Partner could not be used for capital expenditures unless waivers were obtained from those constituencies with prior claims to such proceeds. The Managing General Partner will refinance some or all of the Properties to satisfy the senior and junior mortgages and certain other indebtedness; however, the Managing General Partner does not expect that such refinancing will generate sufficient funds to satisfy all of VMS’s indebtedness and fund the needed capital expenditures at the Properties. As a result and regardless of the ability to consummate the refinancing substantially as described herein, the Managing General Partner considered a number of alternative transactions and determined to proceed with the Transactions.

Capital Replacement

Pursuant to the terms of its existing mortgage indebtedness, VMS is generally restricted to annual capital improvements of $300 per unit or approximately $888,000 for all of its Properties. Such amount is equal to the required replacement reserve funding of the senior debt. As VMS identifies Properties which need additional capital improvements above $300 per unit, approval of the holders of the junior and senior debt is required due to the restriction imposed by the terms of the debt. As such VMS identified during the third quarter of 2004 approximately $6,440,000 of capital improvements that needed to be made to the Properties as a result of life safety issues, compliance with Americans with Disabilities Act requirements and general updating of the Properties. On November 2, 2004, VMS, the holder of the senior debt and the Aimco Operating Partnership, which is the holder of the junior debt, agreed that the Aimco Operating Partnership would loan up to approximately $6,440,000 to VMS (the “New Mezzanine Loan”) to fund the above mentioned capital improvements. The New Mezzanine Loan bears interest at a rate of prime plus 3% with unpaid interest being compounded monthly. VMS, the holder of the senior debt and the Aimco Operating Partnership also agreed that cash flow that would otherwise be used to repay the junior debt will instead be used to repay the New Mezzanine Loan, until such time as the New Mezzanine Loan and all accrued interest thereon is paid in full. The Managing General Partner believes that the payment of such amounts to reduce the New Mezzanine Loan instead of the junior debt will reduce the amount of the junior debt amortized prior to its maturity (therefore increasing the amount due) by an amount at least equal to the principal and interest on the New Mezzanine Loan.

Legal Proceedings

The Partnerships or VMS may be a party to a variety of legal proceedings related to the Properties and management and leasing business arising in the ordinary course of the business, which are not expected to have a material adverse effect on the Partnerships or VMS.

Fiduciary Responsibility of the Managing General Partner of the Partnerships

Under applicable law, the Managing General Partner is accountable to the Partnerships as a fiduciary. Under each Partnership’s agreement of limited partnership, the Managing General Partner will not incur any liability to either Partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by the Partnerships’ partnership agreements. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision. The Managing General Partner is a subsidiary of Aimco. See “CONFLICTS OF INTEREST.”

Each Partnership will, to the extent permitted by law, indemnify and save harmless the Managing General Partner against and from any personal loss, liability, including attorneys’ fees, or damage incurred by it as the result

70

of any act or omission in its capacity as Managing General Partner unless such loss, liability or damage results from bad faith, breach of fiduciary duty, gross negligence or intentional misconduct of the Managing General Partner.

Distributions and Transfers of Units

Distributions

From 1993 through the present, the Partnerships have paid no distributions. All of the cash flow from VMS and the Partnerships is currently dedicated to the payment of operating expenses, capital expenditures and debt service. The Partnerships’ partnership agreements do not permit the Partnerships to distribute any consideration other than cash in liquidation of the interest of a limited partner. However, the limited partners of the Partnerships may elect to waive the right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead. The Partnerships’ partnership agreements also do not permit a special allocation of gain to the limited partners receiving cash, even if such special allocation would be permitted under applicable law. Thus, the receipt of cash by some limited partners will have an adverse tax consequence on those limited partners who choose to waive any portion of the cash distribution and receive Common OP Units instead.

Transfers

The units of the Partnerships are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the “pink sheets,” and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The Managing General Partner monitors transfers of the units (a) because the admission of a transferee as a substitute limited partner requires the consent of the general partner, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a “publicly traded partnership” for tax purposes. However, the Managing General Partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The Managing General Partner estimates, based solely on the transfer records of the Partnerships, that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:

Portfolio I

	Number		Percentage of
	of		Outstanding			Number of
Year	Units		Units			Transactions
2002		53.75		8.35	%		76
2003		3		.47	%		6
2004		2		.31	%		3
2005		4		.62	%		11
2006		2		.31	%		2

Portfolio II

	Number		Percentage of
	of		Outstanding			Number of
Year	Units		Units			Transactions
2002		28.5833		10.71	%		33
2003		4		1.5	%		3
2004		.5		.19	%		1
2005		1.5		.56	%		2
2006		0		0			0

Neither Aimco nor any of its affiliates have made any purchases of interests in either Partnership by Aimco or its affiliates within the past two years.

71

Beneficial Ownership of Interests in Your Partnership

Through subsidiaries, the Aimco Operating Partnership and its affiliates currently own 119 units of limited partnership interest in Portfolio I representing 18.48% of the outstanding limited partnership interests, along with the 1.99% general partner interest for a combined ownership in Portfolio I of 20.47%. The Aimco Operating Partnership and its affiliates currently own 67.42 units of limited partnership interest in Portfolio II representing 25.25% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 27.25%. VMS is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in the Aimco Operating Partnership and its affiliates currently owning 22.47% of VMS. Except as set forth in this proxy statement-prospectus, neither the Aimco Operating Partnership nor, to the best of its knowledge, any of its affiliates, (i) beneficially owns or has a right to acquire any units, (ii) has effected any transactions in the units in the past two years, or (iii) has any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. In addition, to the knowledge of the Managing General Partner, no other person or entity owns of record or beneficially more than 5% of the outstanding interest of either Portfolio I or Portfolio II as of December 31, 2005.

Compensation Paid to the Managing General Partner and its Affiliates

The following table shows, for each of the years indicated, compensation paid to your Managing General Partner and its affiliates:

	Partnership
	Fees,		Property
	Expense and		Management
Year	Interest(1)		Fees		Total
2002	$	4,750,000	$	1,289,000	$	6,039,000
2003		3,973,000		1,253,000		5,222,000
2004		3,855,000		1,201,000		5,056,000
2005		4,507,000		1,278,000		5,785,000
2006 (through September 30 unaudited)		4,224,000		1,024,000		5,248,000

(1) Excludes amortization of the mortgage participation liability. See “Selected Financial Information of VMS” for more information.

Management

VMS and the Partnerships have no directors or officers. The Managing General Partner manages substantially all of the affairs and has general responsibility in all matters affecting the business of VMS. The names of the directors and executive officers of the Managing General Partner, their ages and the nature of all positions with the Managing General Partner presently held by them are set forth on Annex A and are incorporated herein by reference. There are no family relationships between or among any directors or officers.

The directors and officers of the Managing General Partner with authority over VMS are all employees of subsidiaries of Aimco. Aimco has adopted a code of ethics that applies to such directors and officers that is posted on Aimco’s website (www.aimco.com). Aimco’s website is not incorporated by reference to this filing.

Transactions with Affiliates

VMS has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all VMS activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of Properties for an annual compensation of $300,000, adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of VMS up to $100,000 per annum.

72

Asset management fees of approximately $257,000, $351,000, $323,000 and $325,000 were charged by affiliates of the Managing General Partner for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, respectively. At September 30, 2006, approximately $86,000 of such fees were owed.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Properties as compensation for providing property management services. VMS paid, or accrued for payment, to such affiliates approximately $1,024,000, $1,278,000, $1,201,000 and $1,253,000 for the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, respectively. At September 30, 2006, no such fees were owed.

Affiliates of the Managing General Partner charged VMS reimbursement of accountable administrative expenses amounting to approximately $75,000 for the nine months ended September 30, 2006 and $100,000 for each of the years ended December 31, 2005, 2004 and 2003. At September 30, 2006, approximately $25,000 of such reimbursements were owed.

During the nine months ended September 30, 2006, and years ended December 31, 2005, 2004 and 2003, an affiliate of the Managing General Partner provided construction management services to the Partnership in connection with necessary capital improvements to the Properties. The Managing General Partner charged fees related to its provision of these construction management services of approximately $235,000, $174,000, $35,000 and $130,000, respectively, net of the refunds discussed below. The construction management service fees are calculated based on a percentage of additions to investment properties. During the third quarter of 2005, the Managing General Partner determined that approximately $398,000 of such fees previously charged in 2005 and approximately $133,000 of such fees previously charged in 2004 should not have been charged under the terms of the Partnerships’ agreements of limited partnership and refunded the total to VMS during the first quarter of 2006. Prior to December 31, 2005, approximately $239,000 of the total amount that was mistakenly charged was refunded. At December 31, 2005, the amount to be refunded of approximately $292,000 was included in receivables and deposits.

The junior mortgage indebtedness of approximately $21,498,000, $22,674,000 and $22,123,000 at September 30, 2006, December 31, 2005 and 2004, respectively, is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each Property, as defined in the mortgage agreement. During the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, VMS recognized interest expense with respect to such junior mortgage indebtedness of approximately $1,822,000, $2,454,000, $2,444,000, and $2,534,000, respectively.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $93,000 for the nine months ended September 30, 2006 and $123,000 for each of the years ended December 31, 2005, 2004, and 2003.

At September 30, 2006, VMS owed loans of approximately $10,526,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $1,875,000. These loans were made in accordance with the Joint Venture Agreement of VMS and accrue interest at the prime rate plus 3% (11.25% at September 30, 2006). VMS recognized interest expense of approximately $942,000, $848,000, $407,000 and $287,000 during the nine months ended September 30, 2006 and years ended December 31, 2005, 2004 and 2003, respectively. During the nine months ended September 30, 2006, an affiliate of the Managing General Partner loaned five of the properties approximately $1,432,000 to cover outstanding capital improvement payables and two properties approximately $311,000 to cover operating expenses. During the nine months ended September 30, 2006 and year ended December 31, 2005, VMS paid approximately $856,000 and $2,841,000, respectively, of principal and approximately $6,000 and $895,000, respectively, of accrued interest on loans owed to an affiliate of the Managing General Partner. No amounts were paid during the year ended December 31, 2004.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available VMS cash. At September 30, 2006, the outstanding balance of approximately $79,000 was included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the Properties. These fees will be paid from the disposition proceeds and are subordinated

73

to the distributions required by the bankruptcy plan. There were no property dispositions for which proceeds were received during the nine months ended September 30, 2006 and years ended December 31, 2005, 2004, and 2003. The Managing General Partner does not expect that these fees will be paid as a result of the Transactions.

VMS insures 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, general liability and vehicle liability. VMS insures its properties above the Aimco limits through insurance policies obtained by Aimco from insurers unaffiliated with its Managing General Partner. During the nine months ended September 30, 2006 and 2005, Aimco and its affiliates charged VMS approximately $800,000 and $457,000, respectively, for insurance coverage and fees associated with policy claims administration.

SELECTED FINANCIAL INFORMATION OF VMS

The summarized financial information of VMS set forth below for the years ended December 31, 2005, 2004 and 2003 is based on audited financial statements that are contained in VMS’s Annual Report on Form 10-K. The summarized financial information set forth below for the nine months ended September 30, 2006 is based on the unaudited financial statements that are contained in VMS’s Quarterly Report on Form 10-Q. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis or Plan of Operation” in VMS’s Annual Report on Form 10-K for the year ended December 31, 2005 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2006.

VMS National Properties Joint Venture

	For the Nine Months Ended						For the Year Ended
	September 30,						December 31,
Operating Data:	2006			2005			2005			2004			2003
	(In thousands, except per unit data)
Total Revenues	$	26,696		$	24,420		$	33,053		$	30,574		$	31,531
Loss from Continuing Operations		(15,776	)		(7,166	)		(9,455	)		(9,202	)		(7,134	)
Net loss		(15,776	)		(7,166	)		(9,455	)		(9,202	)		(7,134	)
Loss from Continuing Operations per NRP I unit		(16,970	)		(7,710	)		(10,171	)		(9,899	)		(7,674	)
Loss from Continuing Operations per NRP II unit		(16,970	)		(7,708	)		(10,172	)		(9,898	)		(7,674	)
Net loss per NRP I unit		(16,970	)		(7,710	)		(10,171	)		(9,899	)		(7,674	)
Net loss per NRP II unit		(16,970	)		(7,708	)		(10,172	)		(9,898	)		(7,674	)
Distributions per NRP I unit		—			—			—			—			—
Distributions per NRP II unit		—			—			—			—			—
Deficit of earnings to fixed charges	$	(15,744	)	$	(7,188	)	$	(9,473	)	$	(9,202	)	$	(7,146	)
Balance Sheet Data:
Cash and Cash Equivalents	$	1,864		$	2,136		$	2,419		$	2,064		$	1,761
Real Estate, Net of Accumulated Depreciation		46,250			49,525			49,024			49,354			53,059
Total Assets		51,975			56,119			54,823			55,279			58,010
Mortgage Notes Payable		117,704	(1)		120,514	(2)		120,561	(3)		121,992	(4)		124,242	(5)
Mortgage Participation Liability(6)		39,742			23,864			25,505			19,265			13,732
Notes Payable(7)		42,060			42,060			42,060			42,060			42,060
Deferred Gain on Extinguishment of Debt(8)		42,225			42,225			42,225			42,225			42,225
VMS National Residential Portfolio I:
General Partners’ Deficit		(4,229	)		(3,973	)		(4,006	)		(3,872	)		(3,742	)
Limited Partners’ Deficit		(141,667	)		(129,153	)		(130,738	)		(124,188	)		(117,813	)
Partners’ Deficit		(145,896	)		(133,126	)		(134,744	)		(128,060	)		(121,555	)

74

	For the Nine Months Ended						For the Year Ended
	September 30,						December 31,
Operating Data:	2006			2005			2005			2004			2003
	(In thousands, except per unit data)
VMS National Residential Portfolio II:
General Partners’ Deficit		(1,768	)		(1,662	)		(1,675	)		(1,620	)		(1,566	)
Limited Partners’ Deficit		(59,430	)		(54,241	)		(54,899	)		(52,183	)		(49,540	)
Partners’ Deficit		(61,198	)		(55,903	)		(56,574	)		(53,803	)		(51,106	)
Total Partners’ Deficit	$	(207,094	)	$	(189,029	)	$	(191,318	)	$	(181,863	)	$	(172,661	)
Total Distributions		—			—			—			—			—
Book value per NRP I unit	$	(219,980	)	$	(200,548	)	$	(203,009	)	$	(192,839	)	$	(182,939	)
Book value per NRP II unit	$	(222,584	)	$	(203,150	)	$	(205,614	)	$	(195,442	)	$	(185,543	)
Cash Flow Data:
Net (decrease) increase in cash and cash equivalents	$	(555	)	$	72		$	355		$	303		$	(1,048	)
Net cash provided by operating activities		5,254			3,442			6,257			5,003			6,387

(1)	Includes junior mortgages of $21,498 due to an affiliate
(2)	Includes junior mortgages of $22,104 due to an affiliate
(3)	Includes junior mortgages of $22,674 due to an affiliate
(4)	Includes junior mortgages of $22,123 due to an affiliate
(5)	Includes junior mortgages of $22,521 due to an affiliate
(6)	Represents 50% of the excess of the estimated fair market value of the Properties after payment of certain claims. See VMS’s Form 10-Q for the period ended September 30, 2006 and Form 10-K for the year ended December 31, 2005 for further information.
(7)	Represents amounts due to holders of the Class 3-C Claim under the Bankruptcy Plan. See VMS’s Form 10-Q for the period ended September 30, 2006 and Form 10-K for the year ended December 31, 2005 for further information.
(8)	Represents the difference between the face amount ($152,225) and agreed valuation ($110,000) of the senior mortgages encumbering the properties. This amount will become due if the Venture cannot repay the agreed valuation amount upon maturity. See VMS’s Form 10-Q for the period ended September 30, 2006 and Form 10-K for the year ended December 31, 2005 for further information.

CONFLICTS OF INTEREST

Aimco owns both the Managing General Partner of the Partnerships and the general partner of the Aimco Operating Partnership, the sole member of Aimco Properties, LLC. The Managing General Partner has fiduciary duties to the limited partners of the Partnerships, on the one hand, and to Aimco, as its sole shareholder, on the other. As a result, in considering the Affiliated Contribution, the Managing General Partner has substantial conflicts of interest. As the Managing General Partner of the Partnerships, it is obligated to seek a transaction that is in the best interests of the limited partners. In the Transactions, in which assets of VMS are to be transferred, the Managing General Partner is obligated to seek the greatest consideration for VMS. However, as a subsidiary of Aimco, it seeks to minimize the cost to Aimco Properties, LLC and its affiliates of acquiring the Affiliated Contribution Properties. Dissolution of VMS would result in the loss of management fees to the Managing General Partner and its affiliates. Aimco or its affiliates also hold the junior mortgage and certain other indebtedness and bankruptcy claims, including a mortgage participation, general partner loans and other accrued fees, as further described below, in an aggregate amount of $90,581,533 that will be repaid as a part of the Transactions or potentially, in part, as part of a refinancing of VMS’s outstanding indebtedness. The Managing General Partner will complete the refinancing substantially as described herein.

The Aimco Operating Partnership purchased the junior mortgages, with an aggregate principal amount of $29,727,624, on November 19, 1999 for $25,987,241. VMS has made the required payments of principal and

75

interest and, as of September 30, 2006, the amount required to repay the outstanding junior mortgages upon sale of the Properties is an aggregate principal amount of approximately $21,498,000 plus accrued interest of approximately $194,000, which totals approximately $21,692,000. See “SPECIAL FACTORS — RISK FACTORS” and “VMS AND THE PARTNERSHIPS — Transactions with Affiliates.”

In a series of transactions from November 1999 until March 30, 2001, an affiliate of the Aimco Operating Partnership acquired a portion of the “Class 3-C Claim,” an unsecured claim under the confirmed VMS bankruptcy plan, for an aggregate cost of approximately $13,809,159, and the “MF VMS Interest,” an additional claim under the confirmed VMS bankruptcy plan for an aggregate cost of approximately $9,800,000. The Managing General Partner currently estimates that an affiliate of the Aimco Operating Partnership, as owner of a portion of the Class 3-C Claim, will receive approximately $37,115,625 from the proceeds of the refinancing. Under the confirmed VMS bankruptcy plan, after the Class 3-C Claim is paid, the owner of the MF VMS Interest will also receive 25% of any surplus in the partnership advance account established under the confirmed VMS bankruptcy plan utilized to pay the Class 3-C Claim (the “PAA”), which the Managing General Partner estimates will be approximately $2,883,152 from the proceeds of the Transactions or any preceding refinancing that may occur. The remaining 75% of that surplus will be paid to Portfolio I and Portfolio II, as their interests appear, and Portfolio I and Portfolio II will distribute their respective share to their investors after payment of partnership liabilities. After such payments are made, half of any remaining sales proceeds will be paid to Aimco as the owner of the MF VMS Interest, and half of any remaining sales proceeds will be paid to VMS. The Managing General Partner estimates that this payment will equal $55,554,178 from the proceeds of the refinancing and the Transactions. These estimates assume that the refinancing preceding the Transactions described herein occurs and the Properties are contributed or sold as described herein, although there can be no assurance that these estimates will be accurate when the refinancing and the Transactions actually occur.

The general partner loans, and accrued interest on such loans, are approximately $12.6 million as of September 30, 2006, including loans by an affiliate of the Managing General Partner to certain of the Properties intended to cover outstanding capital improvement payables. When the refinancing described herein is obtained by VMS, it is anticipated that these general partner loans will be paid off prior to the completion of the Transactions. See “VMS AND THE PARTNERSHIPS — Transactions with Affiliates.”

INFORMATION CONCERNING AIMCO AND THE AIMCO OPERATING PARTNERSHIP

Aimco Properties, LLC is a Delaware limited liability company whose sole member is the Aimco Operating Partnership. Through Aimco’s wholly owned subsidiaries, AIMCO-GP, Inc., the managing general partner of the Aimco Operating Partnership, and AIMCO-LP, Inc., Aimco holds approximately 90% of the Common OP Units and equivalents of the Aimco Operating Partnership as of September 30, 2006. Aimco conducts substantially all of its business and owns substantially all of its assets through the Aimco Operating Partnership.

Aimco is a Maryland corporation formed on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of September 30, 2006, Aimco owned or managed a portfolio of 1,290 apartment properties containing 224,837 apartment units located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, as of January 1, 2006, Aimco was the largest owner of multifamily apartment properties in the United States. Aimco’s portfolio includes garden style, mid-rise and high-rise properties and Aimco serves approximately one million residents per year.

Aimco owns an equity interest in, and consolidates the majority of, the properties in its owned real estate portfolio. These properties represent the consolidated real estate holdings in its financial statements (“consolidated properties”). In addition, Aimco has an equity interest in, but does not consolidate, certain properties that are accounted for under the equity method. These properties represent the investment in unconsolidated real estate partnerships in its financial statements (“unconsolidated properties”). Additionally, Aimco manages (both property and asset) but does not own an equity interest in other properties, although in certain cases Aimco may indirectly

76

own generally less than one percent of the operations of such properties through a partnership syndication or other fund. The equity holdings and managed properties are as follows as of September 30, 2006:

	Total Portfolio
	Properties		Units
Consolidated properties (of which Aimco manages 166,802 units)		721		167,305
Unconsolidated properties (of which Aimco manages 8,799 units)		109		14,644
Property managed for third parties		42		3,610
Asset managed for third parties		418		39,278
Total		1,290		224,837

The Managing General Partner is a wholly-owned subsidiary of AIMCO/IPT, a Delaware corporation. AIMCO/IPT is a wholly-owned subsidiary of Aimco.

The principal executive offices of Aimco, the Aimco Operating Partnership, Aimco Properties, LLC, AIMCO-GP, and AIMCO/IPT are located at 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101.

The names, positions and business addresses of the directors and executive officers of Aimco, the Aimco Operating Partnership, Aimco Properties, LLC, AIMCO-GP and AIMCO/IPT, as well as a biographical summary of the experience of such persons for the past five years or more, are set forth on Annex A attached hereto and are incorporated in this proxy statement-prospectus by reference.

During the past five years, none of the VMS Related Parties nor, to the best of their knowledge, any of the persons listed in Annex A (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws, or finding any violation with respect to such laws.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS

The following is a discussion of the material United States federal income tax consequences of the sales of the Unaffiliated Sale Properties, the contribution and sale of the Affiliated Contribution Properties, and related transactions, and is based upon the current Internal Revenue Code, the Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this proxy statement-prospectus and all of which are subject to change or differing interpretations, possibly with retroactive effect. This summary does not purport to discuss all aspects of United States federal income taxation which may be important to a particular investor in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and tax-exempt organizations and foreign investors, as determined for United States federal income tax purposes). This summary is also based on the assumptions that the operation of Aimco, the Aimco Operating Partnership, Aimco Properties, LLC and the limited liability companies and limited partnerships in which they own controlling interests (collectively, the “Subsidiary Partnerships”) will be in accordance with their respective organizational documents and partnership agreements. This summary assumes that investors will hold their Common OP Units as capital assets (generally, property held for investment). No advance ruling from the IRS has been or will be sought regarding the tax status of the Aimco Operating Partnership, or the tax consequences relating to the Aimco Operating Partnership or an investment in Common OP Units. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. In addition, this discussion does not address any state, local, or other tax consequences. A limited partner could be subject, however, to income taxation by state, local, or other taxing authorities where the Properties are located or where the limited partner resides. The Partnerships also may be obligated to withhold state or local income taxes from any proceeds allocated or distributed to a limited partner, which may be creditable against the tax liability of a limited partner. Limited partners are urged to consult their tax advisors as to the specific tax consequences to them of the sales of the Properties and related transactions.

77

Sale of the Unaffiliated Sale Properties

If the Unaffiliated Sale Properties are sold, which sales may occur on a property-by-property basis, VMS will recognize gain as a result of the sales. The amount of gain recognized by VMS will be equal to the excess of the sum of the cash and other property received in exchange for the Unaffiliated Sale Properties plus the amount of liabilities assumed by the purchasers, over VMS’ adjusted basis in the Unaffiliated Sale Properties. The gain recognized with respect to the Unaffiliated Sale Properties will be allocated to the Partnerships, and from the Partnerships to the partners, including limited partners, in accordance with the relevant partnership agreements. The total amount of gain that will be recognized by limited partners in the event the Unaffiliated Sale Properties are sold is estimated to be $38,502 per Portfolio I nondefaulted unit, $17,483 per Portfolio I defaulted unit, $38,389 per Portfolio II nondefaulted unit and $17,987 per Portfolio II defaulted unit, assuming a purchase price (including assumed liabilities) of $59,636,000 and basis of the properties as of September 30, 2006. In addition, tax consequences to particular limited partners may vary depending on the effect of: (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or revalued by the Partnerships or VMS. Limited partners are urged to consult their tax advisors as to their particular situations and tax consequences.

Gain from a sale of real property such as the Unaffiliated Sale Properties is generally taxed as Section 1231 gain that is taxed at the same rates as capital gain income (generally 15% for United States federal income tax purposes in the case of individuals, trusts and estates). However, gain attributable to “unrealized receivables,” including depreciation recapture, will be treated as ordinary income. Additionally, under special rules that apply to real property that has been depreciated, it is expected that a substantial amount of the gain from the sales will be taxed as “unrecaptured section 1250 gain.” The maximum rate of tax that “unrecaptured section 1250 gain” may be taxed at is generally 25% for United States federal income tax purposes in the case of individuals, trusts, and estates. The amounts of “unrecaptured section 1250 gain” from the sales are estimated to be $42,506 per Portfolio I nondefaulted unit, $19,301 per Portfolio I defaulted unit, $42,385 per Portfolio II nondefaulted unit and $19,859 per Portfolio II defaulted unit, assuming a purchase price (including assumed liabilities) of $59,636,000 and basis of the properties as of September 30, 2006. These estimates are based upon information currently available to the Managing General Partner. There can be no assurance that these estimates will prove accurate. Each limited partner should consult his or her tax advisor regarding the tax consequences to him or her.

Gain in excess of depreciation recapture gain and unrecaptured section 1250 gain generally will be taxed as section 1231 gain, which may be taxed at capital gain rates depending upon a limited partner’s individual tax circumstances. If there were any section 1231 gain, the special capital gains tax rate would apply only to individuals, trusts, and estates.

The Partnerships will also recognize gain or loss equal to the difference between: (i) the sum of the amount of cash (including a deemed distribution of cash equal to the Partnerships’ share, under applicable tax principles, of the liabilities of VMS) and any other property distributed to the Partnerships by VMS; and (ii) the Partnerships’ adjusted basis in their interests in VMS after adjustment for their share of any gain or loss from the operations of VMS and from the sales. Gain or loss described in this paragraph generally will be capital gain or loss. Such gain or loss will be allocated to the Partnerships, and from the Partnerships to the partners, including the limited partners.

A limited partner also will recognize gain or loss on the liquidation of his or her interest in the Partnership to the extent of the difference between: (i) the sum of the amount of cash (including a deemed distribution of cash equal to the limited partner’s share, under applicable tax principles, of the liabilities of the Partnership) and other property distributed to the limited partner by the Partnership; and (ii) the limited partner’s adjusted basis in his or her Partnership interest after adjustment for such partner’s share of any gain or loss from the Partnership, including gain or loss arising from the allocation of gain or loss from VMS and the distribution or deemed distribution of cash from VMS. Gain or loss recognized on the liquidation of a limited partner’s interest generally will be treated as capital gain or loss.

If a limited partner possesses suspended tax losses, tax credits, or other items of tax benefit, such items may potentially be used to reduce any tax liability that arises with respect to the gain recognized as a result of the sales. The determination of whether a limited partner possesses suspended tax losses, tax credits, or other items of tax

78

benefit that may be used to reduce any gain resulting from the sales will depend upon each limited partner’s individual circumstances. Limited partners are urged to consult with their tax advisors in this regard.

Distributions to a limited partner from the proceeds of the sales, including any deemed distribution of cash to a limited partner resulting from any assumption of VMS indebtedness in connection with the sale of the Unaffiliated Sale Properties or the repayment of VMS indebtedness, will be treated as a nontaxable return of capital to the extent of such limited partner’s basis in his interest in the Partnerships and then as gain from the sale or exchange of such Partnership interest to the extent in excess of such basis. A limited partner may include in his basis in his Partnership interest any gain recognized as a result of the sale of the Unaffiliated Sale Properties. Generally, any gain recognized as a result of distributions, including deemed distributions, by the Partnerships will be capital gain except to the extent the gain is considered to be attributable to unrealized receivables of the Partnership or depreciation claimed with respect to the Properties. In addition, proceeds available for distribution to the limited partners from the sales after repayment of debts may be less than the gain recognized by the Partnership that is allocable to the partners, any gain that is recognized by a limited partner as a result of the distributions made by the Partnerships, and any tax liability resulting therefrom. Accordingly, the limited partners may be required to use funds from sources other than distributions from the Partnerships in order to pay any tax liabilities that may arise as a result of the foregoing.

The Unaffiliated Sale Properties have been substantially or fully depreciated for United States federal income tax purposes. As a result, it is likely that continued operation of the Unaffiliated Sale Properties will likely generate income that will be taxable to the limited partners because it is unlikely that there will be adequate depreciation and other deductions equal to or greater than the income generated from the Unaffiliated Sale Properties. However, it is anticipated that there will not be any cash available for distribution to the limited partners because it is expected that all or substantially all of the Unaffiliated Sale Properties’ cash flow will be used to service VMS’s liabilities. The Partnerships also will continue to incur the administrative costs of operation, including the cost of preparing and filing a partnership tax return. If a limited partner possesses suspended tax losses, tax credits, or other items of tax benefit, such items may potentially be used to reduce any tax liability that arises with respect to any net income taxable to the limited partner as a result of the continued operation of the Unaffiliated Sale Properties by the Partnerships. Limited partners are urged to consult their tax advisors in this regard.

Each limited partner is urged to consult his or her tax advisor regarding the specific tax consequences of the sales and related transactions, including the application of federal, state, local, foreign and other tax laws.

Contribution and Sale of the Affiliated Contribution Properties

Generally, section 721 of the Internal Revenue Code provides that neither VMS, as the contributing partner, nor Aimco Properties, LLC will recognize a gain or loss, for United States federal income tax purposes, upon a contribution of property to Aimco Properties, LLC in exchange for Common OP Units. However, to the extent that any limited partners receive cash with respect to the Affiliated Contribution, VMS will receive cash from Aimco Properties, LLC, and as a result will recognize taxable income. No position is taken as to the character of such taxable income as capital gain or ordinary income. On the other hand, to the extent that limited partners elect to receive Common OP Units, VMS is not expected to recognize taxable income. Taxable income recognized by VMS as a result of cash it received and liabilities assumed by the Aimco Operating Partnership will pass through to the Partnerships, and from the Partnerships to the partners, and therefore will be taxable to the partners, including limited partners who elect to receive Common OP Units. Thus the amount of taxable income passed through from VMS to a limited partner who elects to receive Common OP Units will depend, in part, on the extent to which other limited partners receive cash or Common OP Units in connection with the Affiliated Contribution.

The Partnerships will recognize gain or loss on the liquidation of VMS equal to the difference between the sum of the amount of cash distributed to the Partnerships and the Partnerships’ adjusted basis in their Partnership interests after adjustment for any gain or loss from operation of VMS, including from the contribution of the Affiliated Contribution Properties and sale of the Unaffiliated Sale Properties, through the liquidation of VMS. Such gain or loss will be passed through, and will be taxable, to the partners, including the limited partners who receive Common OP Units.

A partner who receives cash in connection with the Affiliated Contribution will recognize gain or loss on the liquidation of his or her interest in the Partnership equal to the difference between the sum of the amount of cash and

79

the partner’s adjusted basis in his or her Partnership interest after adjustment for any gain or loss from operation of the Partnership, including from the contribution and sale of the Affiliated Contribution Properties and the liquidation of VMS, through the Partnership’s liquidation. The net gain or loss recognized by a limited partner who receives cash is not expected to vary depending on the extent to which other limited partners receive cash or Common OP Units. Even if a limited partner receiving cash has the same net gain or loss regardless of the extent to which other limited partners receive cash or Common OP Units, the character of that gain or loss may vary. For example, gain recognized on the liquidation of a limited partner’s interest generally will be treated as capital gain, but will not be characterized as unrecaptured section 1250 gain, even if a taxable sale of the underlying assets would have given rise to unrecaptured section 1250 gain.

As discussed above, the limited partners of the Partnerships are being given a choice as to the consideration they will receive with respect to the Affiliated Contribution. The Partnerships’ partnership agreements do not permit the Partnerships to distribute any consideration other than cash in liquidation of the interest of a limited partner. However, the limited partners of the Partnerships may elect to waive the right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units directly from the Aimco Operating Partnership instead. Aimco and its affiliates which own limited partnership interests in the Partnerships currently intend to waive their right to receive any portion of the cash distribution with respect to the Affiliated Contribution and receive Common OP Units instead. Even though such limited partners will receive Common OP Units directly from the Aimco Operating Partnership, it is anticipated that applicable regulations will require the limited partners to be treated as if they received the Common OP Units as distributions from the Partnerships. VMS is expected to be treated for tax purposes as if it transferred the Affiliated Contribution Properties to the Aimco Operating Partnership in exchange for both cash and Common OP Units, and distributed the cash and Common OP Units to the Partnerships, which distributed the cash and Common OP Units to the limited partners. The Partnerships’ partnership agreements also do not permit a special allocation of gain to the limited partners receiving cash, even if such special allocation would be permitted under applicable law. Thus, VMS will recognize gain in connection with the Affiliated Contribution to the extent that it requires cash to distribute to the Partnerships and to the limited partners, and such gain will be passed through, and will be taxable, to the partners, including the limited partners who receive Common OP Units. As a result, the receipt of cash by some limited partners will have an adverse tax consequence on those limited partners who choose to waive any portion of the cash distribution and receive Common OP Units instead. In addition, tax consequences to particular limited partners may vary depending on the effect of (i) adjustments to the basis of Partnership property with respect to a limited partner that received its interest in the Partnership as a transferee and (ii) the difference between the tax basis of property of the Partnerships or VMS and the fair market value of such property at the time such property was contributed to or received by the Partnerships or VMS. Limited partners are urged to consult their tax advisors as to these particular situations and tax consequences. If VMS and the Partnerships have not disposed of all the Unaffiliated Sale Properties at the time of the Affiliated Contribution, the applicable regulations may not require that limited partners who receive Common OP Units directly from the Aimco Operating Partnership be treated for tax purposes as if they received the Common OP Units instead from the Partnerships. In that event, such limited partners might defer more gain than otherwise would be possible, but more of the gain of the limited partners who receive cash in connection with the Affiliated Contribution might be characterized as unrecaptured section 1250 gain than would otherwise have been required. It is expected, however, that VMS will dispose of all the Unaffiliated Sale Properties prior to the Affiliated Contribution.

UNITED STATES FEDERAL INCOME TAXATION OF THE AIMCO OPERATING
PARTNERSHIP AND COMMON OP UNITHOLDERS

THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF HOLDERS OF COMMON OP UNITS DEPENDS UPON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF COMMON

80

OP UNITS AND OF AIMCO’S ELECTION TO BE SUBJECT TO TAX, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST.

Partnership Status

Aimco believes that the Aimco Operating Partnership is classified as a partnership for United States federal income tax purposes, and not as an association taxable as a corporation. No assurance can be given, however, that the IRS will not challenge the status of the Aimco Operating Partnership as a partnership.

Some partnerships are, for United States federal income tax purposes, characterized not as partnerships but as associations taxable as corporations or as “publicly traded partnerships” taxable as corporations. A partnership will be classified as a publicly traded partnership if interests therein are traded on an “established securities market” or are “readily tradable” on a “secondary market (or the substantial equivalent thereof).”

The Aimco Operating Partnership believes and intends to take the position that the Aimco Operating Partnership should not be classified as a publicly traded partnership because (i) the OP Units are not traded on an established securities market and (ii) the Aimco Operating Partnership currently believes the OP Units should not be considered readily tradable on a secondary market or the substantial equivalent thereof. The determination of whether interests in a partnership are readily tradable on a secondary market or the substantial equivalent thereof, however, depends on various facts and circumstances (including facts that are not within the control of the Aimco Operating Partnership). Treasury Regulations generally effective for taxable years beginning after December 31, 1995 (the “PTP Regulations”) provide limited safe harbors, which, if satisfied, will prevent a partnership’s interests from being treated as readily tradable on a secondary market or the substantial equivalent thereof. Under a grandfather rule, certain existing partnerships may rely on safe harbors contained in IRS Notice 88-75 rather than on the safe harbors contained in the PTP Regulations for all taxable years of the partnership beginning before January l, 2006. The Aimco Operating Partnership believes that it is subject to such grandfather rule. The Aimco Operating Partnership may not have satisfied any of the safe harbors in Notice 88-75 in its previous tax years. In addition, because the Aimco Operating Partnership’s ability to satisfy a safe harbor in Notice 88-75 (or to the extent applicable, a safe harbor in the PTP Regulations) may involve facts that are not within its control, it is not possible to predict whether the Aimco Operating Partnership will satisfy a safe harbor in future tax years. The safe harbors are not intended to be substantive rules for the determination of whether partnership interests are readily tradable on a secondary market or the substantial equivalent thereof, and consequently, the failure to meet these safe harbors will not necessarily cause the Aimco Operating Partnership to be treated as a publicly traded partnership. No assurance can be given, however, that the IRS will not assert that partnerships such as the Aimco Operating Partnership constitute publicly traded partnerships, or that facts and circumstances will not develop which could result in the Aimco Operating Partnership being treated as a publicly traded partnership.

If the Aimco Operating Partnership were classified as a publicly traded partnership, it would nevertheless not be taxable as a corporation as long as 90% or more of its gross income consists of “qualifying income.” In general, qualifying income includes interest, dividends, “real property rents” (as defined by section 856 of the Internal Revenue Code) and gain from the sale or disposition of real property. The Aimco Operating Partnership believes that more than 90% of its gross income consists of qualifying income and expects that more than 90% of its gross income in future tax years will consist of qualifying income. In such event, even if the Aimco Operating Partnership were characterized as a publicly traded partnership, it would not be taxable as a corporation. If the Aimco Operating Partnership were characterized as a publicly traded partnership, however, each Common OP Unitholder would be subject to special rules under section 469 of the Internal Revenue Code. No assurance can be given that the actual results of the Aimco Operating Partnership operations for any one taxable year will enable it to satisfy the qualifying income exception.

If the Aimco Operating Partnership were classified as an association or publicly traded partnership taxable as a corporation (because it did not meet the qualifying income exception discussed above), it would be subject to tax at the entity level as a regular corporation and Common OP Unitholders would be subject to tax in the same manner as stockholders of a corporation. The classification of the Aimco Operating Partnership as an association or publicly traded partnership taxable as a corporation could also result in a substantial liability to Common OP Unitholders. Thus, the Aimco Operating Partnership would be subject to United States federal tax (and possibly increased state

81

and local taxes) on its net income, determined without reduction for any distributions made to the Common OP Unitholders, at regular United States federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to the Common OP Unitholders, which reduction could also materially and adversely impact the liquidity and value of the Common OP Units. In addition, the Aimco Operating Partnership’s items of income, gain, loss, deduction and expense would not be passed through to the Common OP Unitholders and the Common OP Unitholders would not be subject to tax on the income earned by the Aimco Operating Partnership. Distributions received by a Common OP Unitholder from the Aimco Operating Partnership, however, would be treated as dividend income for United States federal income tax purposes, subject to tax at reduced rates applicable to dividends received by individuals and at ordinary income rates for taxpayers that are not individuals to the extent of current and accumulated earnings and profits of the Aimco Operating Partnership, and the excess, if any, as a nontaxable return of capital to the extent of the Common OP Unitholder’s adjusted tax basis in his Aimco Operating Partnership interest (without taking into account Partnership liabilities), and thereafter as gain from the sale of a capital asset. Characterization of the Aimco Operating Partnership as an association or publicly traded partnership taxable as a corporation would also result in the termination of Aimco’s status as a REIT for United States federal income tax purposes, which would have a material adverse impact on Aimco.

No assurances can be given that the IRS would not challenge the status of the Aimco Operating Partnership as a “partnership” which is not “publicly traded” for United States federal income tax purposes or that a court would not reach a result contrary to such positions. Accordingly, each prospective investor is urged to consult his tax advisor regarding the classification and treatment of the Aimco Operating Partnership as a “partnership” for United States federal income tax purposes.

The following discussion assumes that the Aimco Operating Partnership is, and will continue to be, classified and taxed as a partnership for United States federal income tax purposes.

Taxation of Common OP Unitholder

In general, a partnership is treated as a “pass-through” entity for United States federal income tax purposes and is not itself subject to United States federal income taxation. Each partner of a partnership, however, is subject to tax on his allocable share of partnership tax items, including partnership income, gains, losses, deductions, and expenses (“Partnership Tax Items”) for each taxable year of the partnership ending within or with such taxable year of the partner, regardless of whether he receives any actual distributions from the partnership during the taxable year. Generally, the characterization of any particular Partnership Tax Item is determined at the partnership, rather than at the partner level, and the amount of a partner’s allocable share of such item is governed by the terms of the partnership agreement.

No United States federal income tax will be payable by the Aimco Operating Partnership. Instead, each Common OP Unitholder will be (i) required to include in income his allocable share of any Aimco Operating Partnership income or gains and (ii) entitled to deduct his allocable share of any Aimco Operating Partnership deductions or losses, but only to the extent of the Common OP Unitholder’s adjusted tax basis in his Aimco Operating Partnership interest and subject to the “at risk” and “passive activity loss” rules discussed below under the heading “Limitations on Deductibility of Losses.” A Common OP Unitholder’s allocable share of the Aimco Operating Partnership’s taxable income may exceed the cash distributions to the Common OP Unitholder for any year if the Aimco Operating Partnership retains its profits rather than distributing them.

Allocations of the Aimco Operating Partnership Profits and Losses

For United States federal income tax purposes, a Common OP Unitholder’s allocable share of the Aimco Operating Partnership’s Partnership Tax Items will be determined by the Aimco Operating Partnership agreement if such allocations either have “substantial economic effect” or are determined to be in accordance with the Common OP Unitholder’s interests in the Aimco Operating Partnership. The manner in which Partnership Tax Items of the Aimco Operating Partnership are allocated is described above. If the allocations provided by the Aimco Operating Partnership agreement were successfully challenged by the IRS, the redetermination of the allocations to a particular Common OP Unitholder for United States federal income tax purposes may be less favorable than the allocation set forth in the Aimco Operating Partnership agreement.

82

Tax Basis of a Partnership Interest

A partner’s adjusted tax basis in his partnership interest is relevant, among other things, for determining (i) gain or loss upon a taxable disposition of his partnership interest, (ii) gain upon the receipt of partnership distributions, and (iii) the limitations imposed on the use of partnership deductions and losses allocable to such partner. Generally, the adjusted tax basis of a Common OP Unitholder’s interest in the Aimco Operating Partnership is equal to (A) the sum of the adjusted tax basis of the property contributed by the Common OP Unitholder to the Aimco Operating Partnership in exchange for an interest in the Aimco Operating Partnership and the amount of cash, if any, contributed by the Common OP Unitholder to the Aimco Operating Partnership, (B) reduced, but not below zero, by the Common OP Unitholder’s allocable share of Aimco Operating Partnership distributions, deductions, and losses, (C) increased by the Common OP Unitholder’s allocable share of Aimco Operating Partnership income and gains, and (D) increased by the OP Unitholder’s allocable share of Aimco Operating Partnership liabilities and decreased by the Common OP Unitholder’s liabilities assumed by the Aimco Operating Partnership. However, in the case of Common OP Units received in connection with the Affiliated Contribution, instead of the adjusted tax basis of the property contributed by the Common OP Unitholder in (A) above, the determination under (A) would be based on the adjusted basis of the Common OP Unitholder’s basis in the Partnership immediately before the receipt of such units as adjusted by any gain allocable to such partner with respect to the Affiliated Contribution or distributions from VMS and the Partnerships.

Cash Distributions

Cash distributions received from a partnership do not necessarily correlate with income earned by the partnership as determined for United States federal income tax purposes. Thus, a Common OP Unitholder’s United States federal income tax liability in respect of his allocable share of the Aimco Operating Partnership taxable income for a particular taxable year may exceed the amount of cash, if any, received by the Common OP Unitholder from the Aimco Operating Partnership during such year.

If cash distributions, including a “deemed” cash distribution as discussed below, received by a Common OP Unitholder in any taxable year exceed his allocable share of the Aimco Operating Partnership taxable income for the year, the excess will constitute, for United States federal income tax purposes, a return of capital to the extent of such Common OP Unitholder’s adjusted tax basis in his Aimco Operating Partnership interest. Such return of capital will reduce, but not below zero, the adjusted tax basis of the Aimco Operating Partnership interest held by the Common OP Unitholder. If a Common OP Unitholder’s tax basis in his Aimco Operating Partnership interest is reduced to zero, a subsequent cash distribution received by the Common OP Unitholder will be subject to tax as capital gain and/or ordinary income, but only if, and to the extent that, such distribution exceeds the subsequent positive adjustments, if any, to the tax basis of the Common OP Unitholder’s Aimco Operating Partnership interest as determined at the end of the taxable year during which such distribution is received. A decrease in a Common OP Unitholder’s share of the Aimco Operating Partnership liabilities resulting from the payment or other settlement, or reallocation of such liabilities is generally treated, for United States federal income tax purposes, as a deemed cash distribution. A decrease in a Common OP Unitholder’s percentage interest in the Aimco Operating Partnership because of the issuance by the Aimco Operating Partnership of additional Common OP Units or otherwise, may decrease a Common OP Unitholder’s share of nonrecourse liabilities of the Aimco Operating Partnership and thus, may result in a corresponding deemed distribution of cash.

A non-pro rata distribution (or deemed distribution) of money or property may result in ordinary income to a Common OP Unitholder, regardless of such Common OP Unitholder’s tax basis in his Common OP Units, if the distribution reduces such Common OP Unitholder’s share of the Aimco Operating Partnership’s “Section 751 Assets.” “Section 751 Assets” are defined by the Internal Revenue Code to include “unrealized receivables” or “inventory items.” Among other things, “unrealized receivables” include amounts attributable to previously claimed depreciation deductions on certain types of property. To the extent that such a reduction in a Common OP Unitholder’s share of Section 751 Assets occurs, the Aimco Operating Partnership will be deemed to have distributed a proportionate share of the Section 751 Assets to the Common OP Unitholder followed by a deemed exchange of such assets with the Aimco Operating Partnership in return for the non-pro rata portion of the actual distribution made to such Common OP Unitholder. This deemed exchange will generally result in the realization of ordinary income under Section 751(b) by the Common OP Unitholder. Such income will equal the excess of (1) the

83

non-pro rata portion of such distribution over (2) the Common OP Unitholder’s tax basis in such Common OP Unitholder’s share of such Section 751 Assets deemed relinquished in the exchange.

Tax Consequences Relating to Contributed Assets.

If VMS is deemed, for tax purposes, to transfer property to the Aimco Operating Partnership in exchange for a Common OP Unit, and the adjusted tax basis of such property differs from its fair market value, the Aimco Operating Partnership Tax Items must be allocated in a manner such that VMS (or the partners who receive Common OP Units in the Affiliated Contribution) are charged with, or benefits from, the unrealized gain or unrealized loss associated with such property at the time of the contribution. Where a partner contributes cash to a partnership that holds appreciated property, Treasury Regulations provide for a similar allocation of such items to the other partners. These rules may apply to a contribution by Aimco to the Aimco Operating Partnership of cash proceeds received by Aimco from the offering of its stock. Such allocations are solely for United States federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the Common OP Unitholders. The general purpose underlying this provision is to specially allocate certain Partnership Tax Items in order to place both the noncontributing partners and VMS (or the partners who receive Common OP Units in the Affiliated Contribution) in the same tax position that they would have been in had VMS contributed property with an adjusted tax basis equal to its fair market value. Treasury Regulations provide the Aimco Operating Partnership with several alternative methods and allow the Aimco Operating Partnership to adopt any other reasonable method to make allocations to reduce or eliminate Book-Tax Differences (as defined below). The general partner, in its sole and absolute discretion and in a manner consistent with Treasury Regulations, will select and adopt a method of allocating Aimco Operating Partnership Tax Items for purposes of eliminating such disparities. In this regard, the general partner, while acting in its capacity as general partner of the Aimco Operating Partnership, is not required to take into account the tax consequences to the holders of Common OP Units of its action in such capacity, and may elect a method that is less favorable to holders of Common OP Units than other methods.

In general, certain Common OP Unitholders will be allocated lower amounts of depreciation deductions for tax purposes and increased amounts of taxable income and gain on the sale by the Aimco Operating Partnership or other Subsidiary Partnerships of the Affiliated Contribution Properties. Accordingly, in the event the Aimco Operating Partnership disposes of an Affiliated Contribution Property, income attributable to the Book-Tax Difference of such contributed property generally will be allocated to VMS (or the partners who receive Common OP Units in the Affiliated Contribution), and all Common OP Unitholders generally will be allocated only their share of gains attributable to appreciation, if any, occurring after the contribution of the contributed property. These incremental allocations of income will not result in additional cash distributions to VMS (or the partners who receive Common OP Units in the Affiliated Contribution), with the result that VMS (or the partners who receive Common OP Units in the Affiliated Contribution) may not receive cash sufficient to pay the taxes attributable to such income. These allocations will tend to eliminate the Book-Tax Differences with respect to the contributed property over the life of the Aimco Operating Partnership. However, the special allocation rules of section 704(c) do not always entirely rectify the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover basis of the contributed property in the hands of the Aimco Operating Partnership may cause a noncontributing Common OP Unitholder to be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to such Common OP Unitholder if the contributed property had a tax basis equal to its fair market value at the time of contribution, and possibly to be allocated taxable gain in the event of a sale of the contributed property in excess of the economic or book income allocated to it as a result of such sale.

Disguised Sale Rules

As described above, if the partners who receive Common OP Units in the Affiliated Contribution receive or are deemed to receive for United States federal income tax purposes, cash or other consideration in addition to Common OP Units upon the contribution of property to the Aimco Operating Partnership and for at least two years thereafter (other than certain safe harbor distributions), the transaction will likely be treated as part contribution of property and part sale of property under the “disguised sale rules.” The disguised sale rules may also apply where property is transferred to the Aimco Operating Partnership subject to certain liabilities. In such event, the contributing partner

84

will recognize gain or loss with respect to the portion of the property that is deemed to be sold to the Aimco Operating Partnership. If the disguised sale rules apply, all or a portion of the liabilities associated with the contributed property may be treated as consideration received by the partners who receive Common OP Units in the Affiliated Contribution in a sale of the property to the Aimco Operating Partnership. The disguised sale rules may apply if the issuance of Common OP Units in connection with the Contribution Agreement is integrated with any other acquisition between Aimco and VMS or any related party. For example, the IRS may assert that any redemption or exchange for several years between the Aimco Operating Partnership and VMS constitutes an “integrated disguised sale” that may result in taxation. No assurances can be given that the IRS would not be successful in such an assertion. You are urged to consult your tax advisor regarding the application of the disguised sale rules.

Limitations on Deductibility of Losses

Basis Limitation.  To the extent that a Common OP Unitholder’s allocable share of Aimco Operating Partnership deductions and losses exceeds his adjusted tax basis in his Aimco Operating Partnership interest at the end of the taxable year in which the losses and deductions flow through, the excess losses and deductions cannot be utilized, for United States federal income tax purposes, by the Common OP Unitholder in such year. The excess losses and deductions may, however, be utilized in the first succeeding taxable year in which, and to the extent that, there is an increase in the tax basis of the Aimco Operating Partnership interest held by such Common OP Unitholder, but only to the extent permitted under the “at risk” and “passive activity loss” rules discussed below.

“At Risk” Limitation.  Under the “at risk” rules of section 465 of the Internal Revenue Code, a noncorporate taxpayer and a closely held corporate taxpayer are generally not permitted to claim a deduction, for United States federal income tax purposes, in respect of a loss from an activity, whether conducted directly by the taxpayer or through an investment in a partnership, to the extent that the loss exceeds the aggregate dollar amount which the taxpayer has “at risk” in such activity at the close of the taxable year. To the extent that losses are not permitted to be used in any taxable year, such losses may be carried over to subsequent taxable years and may be claimed as a deduction by the taxpayer if, and to the extent that, the amount which the taxpayer has “at risk” is increased. Provided certain requirements are met, the “at risk” rules generally do not apply to losses arising from any activity that constitutes “the holding of real property,” which the holders of a Common OP Unit generally should constitute.

“Passive Activity Loss” Limitation.  The passive activity loss rules of section 469 of the Internal Revenue Code limit the use of losses derived from passive activities, which generally includes an investment in limited partnership interests such as the Common OP Units. If an investment in a Common OP Unit is treated as a passive activity, a Common OP Unitholder who is an individual investor, as well as certain other types of investors, would not be able to use losses from the Aimco Operating Partnership to offset nonpassive activity income, including salary, business income, and portfolio income (e.g., dividends, interest, royalties, and gain on the disposition of portfolio investments) received during the taxable year. Passive activity losses that are disallowed for a particular taxable year may, however, be carried forward to offset passive activity income earned by the Common OP Unitholder in future taxable years. In addition, such disallowed losses may be claimed as a deduction, subject to the basis and at risk limitations discussed above, upon a taxable disposition of a Common OP Unitholder’s entire interest in the Aimco Operating Partnership, regardless of whether such Common OP Unitholder has received any passive activity income during the year of disposition.

If the Aimco Operating Partnership were characterized as a publicly traded partnership, each Common OP Unitholder would be required to treat any loss derived from the Aimco Operating Partnership separately from any income or loss derived from any other publicly traded partnership, as well as from income or loss derived from other passive activities. In such case, any net losses or credits attributable to the Aimco Operating Partnership which are carried forward may only be offset against future income of the Aimco Operating Partnership. Moreover, unlike other passive activity losses, suspended losses attributable to the Aimco Operating Partnership would only be allowed upon the complete disposition of the Common OP Unitholder’s “entire interest” in the Aimco Operating Partnership.

85

Section 754 Election

The Aimco Operating Partnership has made the election permitted by section 754 of the Internal Revenue Code. Such election is irrevocable without the consent of the IRS. The election will generally permit a purchaser of Common OP Units, such as Aimco when it acquires Common OP Units from Common OP Unitholders, to adjust its share of the basis in the Aimco Operating Partnership’s properties pursuant to section 743(b) of the Internal Revenue Code to fair market value (as reflected by the value of consideration paid for the Common OP Units), as if such purchaser had acquired a direct interest in the Aimco Operating Partnership assets. The section 743(b) adjustment is attributed solely to a purchaser of Common OP Units and is not added to the bases of the Aimco Operating Partnership’s assets associated with all of the Common OP Unitholders in the Aimco Operating Partnership.

Depreciation

Section 168(i)(7) of the Internal Revenue Code provides that in the case of property transferred to a partnership in a section 721 transaction, the transferee shall be treated as the transferor for purposes of computing the depreciation deduction with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. The effect of this rule would be to continue the historic basis, placed in service dates and methods with respect to the depreciation of the properties being contributed by a contributing partner to the Aimco Operating Partnership in exchange for Common OP Units. However, an acquirer of Common OP Units that obtains a section 743(b) adjustment by reason of such acquisition (see “Section 754 Election,” above) generally will be allowed depreciation with respect to such adjustment beginning as of the date of the exchange as if it were new property placed in service as of that date.

Sale, Redemption, or Exchange of OP Units

A Common OP Unitholder will recognize a gain or loss upon a sale of a Common OP Unit, a redemption of a Common OP Unit for cash, an exchange of a Common OP Unit for shares of Class A Common Stock or other taxable disposition of a Common OP Unit. At the time of redemption of Common OP Units, the Aimco Operating Partnership shall determine whether cash, Class A Common Stock, or a combination thereof is paid to limited partners. Gain or loss recognized upon a sale or exchange of a Common OP Unit will be equal to the difference between (i) the amount realized in the transaction (i.e., the sum of the cash and the fair market value of any property received for the Common OP Unit plus the amount of the Aimco Operating Partnership liabilities allocable to the Common OP Unit at such time) and(ii) the Common OP Unitholder’s tax basis in the Common OP Unit disposed of, which tax basis will be adjusted for the Common OP Unitholder’s allocable share of the Aimco Operating Partnership’s income or loss for the taxable year of the disposition. The tax liability resulting from the gain recognized on a disposition of a Common OP Unit could exceed the amount of cash and the fair market value of property received.

If the Aimco Operating Partnership redeems a Common OP Unitholder’s Common OP Units for cash (which is not contributed by Aimco to effect the redemption), the tax consequences generally would be the same as described in the preceding paragraphs, except that if the Aimco Operating Partnership redeems less than all of a Common OP Unitholder’s Common OP Units, the Common OP Unitholder would recognize no taxable loss and would recognize taxable gain only to the extent that the cash, plus the amount of the Aimco Operating Partnership liabilities allocable to the redeemed Common OP Units, exceeded the Common OP Unitholder’s adjusted tax basis in all of such Common OP Unitholder’s Common OP Units immediately before the redemption.

Capital gains recognized by individuals and certain other noncorporate taxpayers upon the sale or disposition of a Common OP Unit will be subject to a maximum United States federal income tax rate of 15% (through 2010) if the Common OP Unit is held for more than 12 months and will be taxed at ordinary income tax rates if the Common OP Unit is held for 12 months or less. Gains recognized by stockholders that are corporations are subject to United States federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. Generally, gain or loss recognized by a Common OP Unitholder on the sale or other taxable disposition of a Common OP Unit will be taxable as capital gain or loss. However, to the extent that the amount realized upon the sale or other taxable disposition of a Common OP Unit attributable to a Common OP Unitholder’s share of “unrealized receivables” of

86

the Aimco Operating Partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, “unrealized receivables” include amounts attributable to previously claimed depreciation deductions on certain types of property.

Termination of the Aimco Operating Partnership

In the event of the dissolution of the Aimco Operating Partnership, a distribution of partnership property (other than money and marketable securities) will not result in taxable gain to a Common OP Unitholder (except to the extent provided in section 737 of the Internal Revenue Code for liquidations occurring within seven years of the date of contribution by a Common OP Unitholder of property to the Aimco Operating Partnership), and the Common OP Unitholder will hold such distributed property with a basis equal to the adjusted basis of such Common OP Units exchanged therefor, reduced by any money distributed in liquidation. Further, the liquidation of the Aimco Operating Partnership generally will be taxable to a holder of Common OP Units to the extent that the value of any money and marketable securities distributed in liquidation (including any money deemed distributed as a result of relief from liabilities) exceeds such Common OP Unitholder’s tax basis in his Common OP Units.

Alternative Minimum Tax

The Internal Revenue Code contains different sets of minimum tax rules applicable to corporate and noncorporate investors. The discussion below relates only to the alternative minimum tax applicable to noncorporate taxpayers. Accordingly, corporate investors should consult with their tax advisors with respect to the effect of the corporate minimum tax provisions that may be applicable to them. Noncorporate taxpayers are subject to an alternative minimum tax to the extent the tentative minimum tax (“TMT”) exceeds the regular income tax otherwise payable. The rate of tax imposed on the alternative minimum taxable income (“AMTI”) in computing TMT is 26% on the first $175,000 of alternative minimum taxable income in excess of an exemption amount and 28% on any additional alternative minimum taxable income of noncorporate investors. In general, AMTI consists of the taxpayer’s taxable income, determined with certain adjustments, plus his items of tax preference. For example, alternative minimum taxable income is calculated using an alternative cost recovery (depreciation) system that is not as favorable as the methods provided for under section 168 of the Internal Revenue Code which the Aimco Operating Partnership will use in computing its income for regular United States federal income tax purposes. Accordingly, a Common OP Unitholder’s AMTI derived from the Aimco Operating Partnership may be higher than such Common OP Unitholder’s share of the Aimco Operating Partnership’s net taxable income. You should consult your tax advisor as to the impact of an investment in Common OP Units on their liability for the alternative minimum tax.

Information Returns and Audit Procedures

The Aimco Operating Partnership will use all reasonable efforts to furnish to each Common OP Unitholder within 90 days of the close of each taxable year of the Aimco Operating Partnership, certain tax information, including a Schedule K-l, which sets forth each Common OP Unitholder’s allocable share of the Aimco Operating Partnership’s Partnership Tax Items. In preparing this information the Aimco General Partner will use various accounting and reporting conventions to determine the respective Common OP Unitholder’s allocable share of Partnership Tax Items. The Aimco General Partner cannot assure a current or prospective Common OP Unitholder that the IRS will not successfully contend in court that such accounting and reporting conventions are impermissible.

No assurance can be given that the Aimco Operating Partnership will not be audited by the IRS or that tax adjustments will not be made. Further, any adjustments in the Aimco Operating Partnership’s tax returns will lead to adjustments in Common OP Unitholders’ tax returns and may lead to audits of their returns and adjustments of items unrelated to the Aimco Operating Partnership. Each Common OP Unitholder would bear the cost of any expenses incurred in connection with an examination of such Common OP Unitholder’s personal tax return.

Partnerships generally are treated as separate entities for purposes of United States federal income tax, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of Partnership Tax Items generally is determined at the partnership level in a unified partnership proceeding rather than in separate

87

proceedings with the partners. The Internal Revenue Code provides for one partner to be designated as the Tax Matters Partner for these purposes.

The Tax Matters Partner is authorized, but not required, to take certain actions on behalf of the Aimco Operating Partnership and Common OP Unitholders and can extend the statute of limitations for assessment of tax deficiencies against Common OP Unitholders with respect to the Aimco Operating Partnership Tax Items. The Tax Matters Partner may bind a Common OP Unitholder with less than a l% profits interest in the Aimco Operating Partnership to a settlement with the IRS, unless such Common OP Unitholder elects, by filing a statement with the IRS, not to give such authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review (to which all the Common OP Unitholders are bound) of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, such review may be sought by any Common OP Unitholder having at least a 1% interest in the profits of the Aimco Operating Partnership or by Common OP Unitholders having in the aggregate at least a 5% profits interest. However, only one action for judicial review will go forward, and each Common OP Unitholder with an interest in the outcome may participate.

Tax Return Disclosure and Investor List Requirements

Recently promulgated Treasury regulations require participants in a “reportable transaction” to disclose certain information about the transaction to the IRS with their tax returns and retain certain information relating to the transaction (the “Disclosure Requirement”). In addition, organizers, sellers, and certain advisors of a reportable transaction are required to maintain certain records, including lists identifying the investors in a transaction, and to furnish those records, as well as detailed information regarding the transaction, to the IRS upon demand (the “List Maintenance Requirement”). While the Disclosure Requirement and the List Maintenance Requirement are directed towards “tax shelters,” the regulations are written quite broadly, and apply to transactions that would not typically be considered tax shelters. In addition, legislative proposals have been introduced in Congress, that, if enacted, would impose significant penalties for failure to comply with these requirements.

A transaction may be a reportable transaction based upon any of several indicia, including, among other things, if it could result in book-tax differences in excess of prescribed thresholds. The transaction contemplated herein results in book-tax differences in excess of prescribed thresholds and as such, is a reportable transaction under the recently adopted Treasury Regulations involving tax shelters. Characterization of this transaction as a reportable transaction may increase the likelihood of an audit by the IRS. You will be required to attach a completed IRS Form 8886, the “Reportable Transaction Disclosure Statement,” to your tax return for the taxable year of the transaction, as well as provide a copy of this form to the Office of Tax Shelter Analysis at the same time that such statement is first filed with the IRS. You should consult your tax advisers concerning these disclosure obligations with respect to the receipt or disposition of Common OP Units, or transactions that might be undertaken directly or indirectly by the Aimco Operating Partnership. Moreover, you should be aware that the Aimco Operating Partnership and other participants in the transactions involving the Aimco Operating Partnership (including their advisors) will be subject to the Disclosure Requirement and/or the List Maintenance Requirement.

UNITED STATES FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS

The following is a summary of certain United States federal income tax consequences resulting from the acquisition of, holding, exchanging, and otherwise disposing of Aimco common stock. This discussion is based upon the Internal Revenue Code, Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this memorandum and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is also based on the assumptions that the operation of Aimco, the Aimco Operating Partnership and the Subsidiary Partnerships will be in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of United States federal income taxation which may be important to a particular investor in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States federal income tax purposes). This summary assumes that investors will hold their Aimco stock as capital assets (generally, property held for investment). No advance

88

ruling has been or will be sought from the IRS regarding any matter discussed in this memorandum. Counsel has not rendered any legal opinion regarding the status of Aimco as a REIT, or the tax consequences relating to Aimco or an investment in Aimco stock in connection with this memorandum. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.

THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF AIMCO STOCK AND OF AIMCO’S ELECTION TO BE SUBJECT TO TAX, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST.

General

The REIT provisions of the Internal Revenue Code are highly technical and complex. The following summary sets forth certain aspects of the provisions of the Internal Revenue Code that govern the United States federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety by the applicable Internal Revenue Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect.

Aimco has elected to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ending December 31, 1994, and Aimco intends to continue such election. Although Aimco believes that, commencing with the Aimco’s initial taxable year ended December 31, 1994, Aimco was organized in conformity with the requirements for qualification as a REIT, and its actual method of operation has enabled, and its proposed method of operation will enable, it to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code, no assurance can be given that Aimco has been or will remain so qualified. Such qualification and taxation as a REIT depends upon Aimco’s ability to meet, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Internal Revenue Code as discussed below. Aimco’s compliance with the REIT income and quarterly asset requirements depends upon Aimco’s ability to successfully manage the composition of its income and assets on an ongoing basis. Aimco’s ability to qualify as a REIT also requires that it satisfies certain asset tests, some of which depend upon the fair market value of assets directly or indirectly owned by Aimco. Such values may not be susceptible to a precise determination, and Aimco will not obtain independent appraisals. No assurance can be given that the actual results of Aimco’s operation for any taxable year satisfy such requirements. No assurance can be given that the IRS will not challenge Aimco’s eligibility for taxation as a REIT.

Provided Aimco qualifies for taxation as a REIT, it will generally not be subject to United States federal corporate income tax on its net income that is currently distributed to its stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from investment in a corporation. Rather, income generated by a REIT generally is taxed only at the stockholder level upon a distribution of dividends by the REIT. The maximum rate at which individual stockholders are taxed on corporate dividends generally is 15% (the same as long-term capital gains) through 2010. Dividends received by stockholders from Aimco or from other entities that are taxed as REITs, however, are generally not eligible for the reduced rates and will continue to be taxed at rates applicable to ordinary income. Net operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to the stockholders of the REIT, subject to special rules for certain items such as capital gains recognized by REITs.

However, notwithstanding Aimco’s qualification as a REIT, Aimco will be subject to United States federal income tax as follows:

(a) First, Aimco will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains.

89

(b) Second, under certain circumstances, Aimco may be subject to the “alternative minimum tax” on its items of tax preference, including any deductions of net operating losses.

(c) Third, if Aimco has net income from the sale or other disposition of “foreclosure property” that Aimco holds primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, it will be subject to tax at the highest corporate rate on such income.

(d) Fourth, if Aimco has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure property), such income will be subject to a 100% tax.

(e) Fifth, if Aimco should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), but has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on an amount based on the magnitude of the failure adjusted to reflect Aimco’s profitability.

(f) Sixth, if Aimco fails to satisfy any of the asset tests described below or any of the REIT qualification requirements other than the gross income and asset tests and such failure is due to reasonable cause, Aimco may avoid disqualification as a REIT by, among other things, paying a penalty of $50,000 or more in certain cases.

(g) Seventh, if Aimco should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year (other than certain long-term capital gains that Aimco elects to retain and pay the tax thereon), and (iii) any undistributed taxable income from prior periods, Aimco would be subjected to a 4% excise tax on the excess of such required distribution over the sum of (a) amounts actually distributed plus (b) retained amounts on which income tax is paid at the corporate level.

(h) Eighth, a 100% excise tax may be imposed on some items of income expense that are directly or constructively paid between a REIT and a taxable REIT subsidiary (as described below) if and to the extent that the IRS successfully adjusts the reported amounts of these items.

(i) Ninth, if Aimco acquires assets from a corporation that is not a REIT (a “subchapter C corporation”) in a transaction in which the adjusted tax basis of the assets in the hands of Aimco is determined by reference to the adjusted tax basis of such assets in the hands of the subchapter C corporation, under Treasury Regulations, Aimco may be subject to tax at the highest regular corporate tax rate on any gain it recognizes on the disposition of any such asset during the ten-year period beginning on the day on which Aimco acquires such asset to the extent of the excess, if any, of the fair market value over the adjusted basis of such asset as of its acquisition date (“Built-in Gain”). It should be noted that Aimco has acquired (and may acquire in the future) a significant amount of assets with Built-in Gain and a taxable disposition by Aimco of any of these assets within ten years of their acquisitions would subject Aimco to tax under the foregoing rule.

(j) Tenth, Aimco may be required to pay monetary penalties to the IRS in certain circumstances, including if it fails to meet record keeping requirements intended to monitor its compliance with rules relating to the composition of a REIT’s stockholders.

(k) Eleventh, certain of Aimco’s subsidiaries are subchapter C corporations, the earnings of which are subject to United States federal corporate income tax.

(l) Twelfth, Aimco could be subject to foreign taxes on its investments and activities in foreign jurisdictions. In addition, Aimco could also be subject to tax in certain situations and on certain transactions not presently contemplated.

Requirements for Qualification.  The Internal Revenue Code defines a REIT as a corporation, trust or association:

(a) that is managed by one or more trustees or directors;

90

(b) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

(c) which would be taxable as a domestic corporation, but for the special Internal Revenue Code provisions applicable to REITs;

(d) that is neither a financial institution nor an insurance company subject to certain provisions of the Internal Revenue Code;

(e) the beneficial ownership of which is held by 100 or more persons;

(f) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities); and

(g) which meets certain other tests described below (including with respect to the nature of its income and assets).

The Internal Revenue Code provides that the first four conditions must be met during the entire taxable year and that the fifth condition must be met during at least 335 days of a taxable year of 12 months or during a proportionate part of a taxable year of less than 12 months. Aimco’s charter provides certain restrictions regarding transfers of its shares, which provisions are intended to assist Aimco in satisfying the share ownership requirements described in the fifth and sixth conditions above.

To monitor Aimco’s compliance with the share ownership requirements, Aimco is required to maintain records regarding the actual ownership of its shares. To do so, Aimco must demand written statements each year from the record holders of certain percentages of its stock in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the REIT dividends). A list of those persons failing or refusing to comply with this demand must be maintained as part of Aimco’s records. Failure by Aimco to comply with these record keeping requirements could subject it to monetary penalties. A stockholder who fails or refuses to comply with the demand must submit a statement with its tax return disclosing the actual ownership of the shares and certain other information.

In addition, a corporation may not elect to become a REIT unless its taxable year is the calendar year. Aimco satisfies this requirement.

Ownership of Partnership Interests.  In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share of the partnership’s assets and to earn its proportionate share of the partnership’s income. In addition, the assets and gross income of the partnership are deemed to retain the same character in the hands of the REIT for purposes of the gross income and asset tests applicable to REITs as described below. Thus, Aimco’s proportionate share of the assets, liabilities and items of income of the Subsidiary Partnerships will be treated as assets, liabilities and items of income of Aimco for purposes of applying the REIT requirements described herein. A summary of certain rules governing the United States federal income taxation of partnerships and their partners is provided below in “ — Tax Aspects of Aimco’s Investments in Partnerships.”

Income Tests.  In order to maintain qualification as a REIT, Aimco annually must satisfy two gross income requirements:

(a) First, at least 75% of Aimco’s gross income (excluding gross income from “prohibited transactions,” i.e., certain sales of property held primarily for sale to customers in the ordinary course of business) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (including “rents from real property,” gains from the sale of real estate assets and, in certain circumstances, interest) or from certain types of temporary investments.

(b) Second, at least 95% of Aimco’s gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from such real property investments, and from dividends, interest and gain from the sale or disposition of stock or securities (or from any combination of the foregoing).

91

Rents received by Aimco through the Subsidiary Partnerships will qualify as “rents from real property” in satisfying the gross income requirements described above, only if several conditions are met, including the following. Amounts received from the rental of up to 10% of a property to a taxable REIT subsidiary will qualify as “rents from real property” so long as the rents received from the taxable REIT subsidiary are substantially comparable to rents received from other tenants of the property for comparable space. Otherwise, neither Aimco nor an owner of 10% or more of Aimco’s shares may own 10% or more of a tenant. Rents may not be based in whole or in part on the income or profits of any person, although rents may be based on a fixed percentage of receipts or sales. If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as “rents from real property.” Moreover, for rents received to qualify as “rents from real property,” the REIT generally must not furnish or render services to the tenants of such property, other than through an “independent contractor” from which the REIT derives no revenue or through a taxable REIT subsidiary. Aimco (or its affiliates) is also permitted to directly perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, Aimco (or its affiliates) may directly or indirectly provide non-customary services to tenants of its properties without disqualifying all of the rent from the property if the payment for such services does not exceed 1% of the total gross income from the property. For purposes of this test, the income received from such non-customary services is deemed to be at least 150% of the direct cost of providing the services.

If any amount of interest, rent, or other deductions of a taxable REIT subsidiary for amounts paid to Aimco is determined by the IRS to be other than at arm’s length, a 100 percent excise tax is imposed on the portion that is excessive.

Aimco manages apartment properties for third parties and affiliates through subsidiaries that Aimco refers to as the “management companies.” The management companies receive management fees and other income. Distributions from the management companies to Aimco are classified as dividend income to the extent of the earnings and profits of the management companies. Such distributions will generally qualify under the 95% gross income test but not under the 75% gross income test.

If Aimco fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Internal Revenue Code. These relief provisions will be generally available if Aimco’s failure to meet such tests was due to reasonable cause and not due to willful neglect and Aimco files a disclosure schedule with the IRS. If these relief provisions are inapplicable to a particular set of circumstances involving Aimco, Aimco will not qualify as a REIT. As discussed above, even where these relief provisions apply, a tax is imposed with respect to the excess net income.

Asset Tests.  Aimco, at the close of each quarter of its taxable year, must also satisfy four tests relating to the nature of its assets:

(a) First, at least 75% of the value of Aimco’s total assets must be represented by real estate assets (including its allocable share of real estate assets held by the Subsidiary Partnerships), certain stock or debt instruments purchased by Aimco with new capital, cash, cash items and U.S. government securities.

(b) Second, not more than 25% of Aimco’s total assets may be represented by securities other than those in the 75% asset class.

(c) Third, of the investments included in the 25% asset class, the value of any one issuer’s securities owned by Aimco may not exceed 5% of the value of Aimco’s total assets, and Aimco may not own more than 10% of the total value or the total voting power of the outstanding securities of any one issuer, including an individual, partnership or non-REIT C corporation that is not taxed as a taxable REIT subsidiary.

(d) The value of securities held by Aimco in its taxable REIT subsidiaries (including the management companies) will not exceed, in the aggregate, 20% of the value of Aimco’s total assets.

The 5% and 10% asset limitations described above do not apply to electing “taxable REIT subsidiary” corporations. The 10% value test does not apply to “straight debt” having specified characteristics and in general does not apply to a loan to an individual or estate, certain non-related party rental agreements, obligations to pay

92

“rents from real property,” certain state or government issued securities, securities issued by a REIT, or any other arrangements as determined by the Secretary of the Treasury. In addition, special rules apply for indebtedness issued by a partnership for purposes of the 10% value test.

Aimco believes that the value of the securities held by Aimco in its taxable REIT subsidiaries (including the management companies) will not exceed, in the aggregate, 20% of the value of Aimco’s total assets.

No independent appraisals have been obtained to support Aimco’s conclusions as to the value of the Aimco Operating Partnership’s total assets and the value of the Aimco Operating Partnership’s interest in the taxable REIT subsidiaries and these values are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for United States federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset test requirements. Accordingly, there can be no assurance that the IRS will not contend that Aimco’s interests in its subsidiaries or in the securities of other issuers will cause a violation of the REIT asset requirements and loss of REIT status.

Aimco indirectly owns interests in the management companies. As set forth above, the ownership of more than 10% of the total value or the total voting power of the outstanding voting securities of any one issuer by a REIT, or the investment of more than 5% of the REIT’s total assets in any one issuer’s securities, is prohibited by the asset tests. Aimco believes that its indirect ownership interests in the management companies qualify under the asset tests set forth above. However, no independent appraisals have been obtained to support Aimco’s conclusions as to the value of the Aimco Operating Partnership’s total assets and the value of the Aimco Operating Partnership’s interest in the management companies and these values are subject to change in the future. Furthermore, the operation or management of a health care or lodging facility precludes qualification as a taxable REIT subsidiary, and therefore precludes the REIT from relying upon this exception to the 10% ownership restriction. Consequently, if any of the management companies were deemed to operate or manage a health care or lodging facility, such management companies would fail to qualify as taxable REIT subsidiaries, and Aimco would fail to qualify as a REIT. Aimco believes that, as of January 1, 2001, none of the management companies operate or manage any health care or lodging facilities. However, the statute provides little guidance as to the definition of a health care or lodging facility. Accordingly, there can be no assurances that the IRS will not contend that any of the management companies operate or manage a health care or lodging facility, disqualifying it from treatment as a taxable REIT subsidiary, and thereby resulting in the disqualification of Aimco as a REIT.

Aimco’s indirect interests in the Aimco Operating Partnership and other Subsidiary Partnerships are held through wholly owned corporate subsidiaries of Aimco organized and operated as “qualified REIT subsidiaries” within the meaning of the Internal Revenue Code. Qualified REIT subsidiaries are not treated as separate entities from their parent REIT for United States federal income tax purposes. Instead, all assets, liabilities and items of income, deduction and credit of each qualified REIT subsidiary are treated as assets, liabilities and items of Aimco. Each qualified REIT subsidiary therefore is not subject to United States federal corporate income taxation, although it may be subject to state or local taxation. A qualified REIT subsidiary is any corporation, other than a “taxable REIT subsidiary,” that is wholly-owned by a REIT, or by other disregarded subsidiaries, or by a combination of the two. In addition, Aimco’s ownership of the stock of each qualified REIT subsidiary does not violate the general restriction against ownership of more than 10% of the total value or total voting power of the outstanding securities of any issuer.

After initially meeting the asset tests at the end of any quarter, Aimco will not lose its status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the asset tests results from an acquisition of securities or other property during the quarter, Aimco may cure the failure by disposing of a sufficient amount of non-qualifying assets within 30 days after the close of the quarter.

After the 30-day cure period, a REIT may avoid disqualification as a REIT by disposing of sufficient assets to cure such a violation that does not exceed the lesser of 1% of the REIT’s assets at the end of the relevant quarter or $10,000,000, provided that the disposition occurs within 6 months following the last day of the quarter in which the REIT first identified the violation. For violations of any of the asset tests due to reasonable cause that are larger than this de minimis provision, a REIT may avoid disqualification as a REIT after the 30-day cure period by taking certain steps, including the disposition of sufficient assets within the 6-month period described above to meet the applicable asset test, paying a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the

93

net income generated by the nonqualifying assets during the period the assets were held as non-qualifying assets, and filing a schedule with the IRS that describes the non-qualifying assets.

Annual Distribution Requirements.  In order for Aimco to qualify as a REIT, Aimco is required to distribute dividends (other than capital gain dividends) to its stockholders in an amount at least equal to:

•  the sum of:

(i) 90% of Aimco’s “REIT taxable income” (computed without regard to the dividends-paid deduction and Aimco’s net capital gain, i.e., the excess of net long-term capital gain over net short-term capital loss) and

(ii) 90% of the net income (after tax), if any, from foreclosure property, minus

•  the sum of certain items of noncash income.

Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before Aimco timely files its tax return for such year and if paid with or before the first regular dividend payment after such declaration. In order for distributions to be counted for this purpose, and to give rise to a tax deduction by Aimco, they must not be “preferential dividends.” A dividend is not a preferential dividend if it is pro rata among all outstanding shares of stock within a particular class, and is in accordance with the preferences among different classes of stock as set forth in Aimco organizational documents. To the extent that Aimco distributes at least 90%, but less than 100%, of its “REIT taxable income,” as adjusted, it will be subject to tax thereon at ordinary corporate tax rates. Aimco may elect to retain, rather than distribute, its net long-term capital gains and pay tax on such gains. In such a case, Aimco’s stockholders would include their proportionate share of such undistributed long-term capital gains in income and receive a credit for their share of the tax paid by Aimco. Aimco’s stockholders would then increase the adjusted basis of their Aimco shares by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their shares. If Aimco should fail to distribute during each calendar year at least the sum of

(i) 85% of its REIT ordinary income for such year and

(ii) 95% of its REIT capital gain net income for such year (excluding retained long-term capital gains), and

(iii) any undistributed taxable income from prior periods,

Aimco would be subject to a 4% excise tax on the excess of such required distribution over the sum of (a) amounts actually distributed plus (b) retained amounts on which income tax is paid at the corporate level. Aimco believes that it has made, and intends to make, timely distributions sufficient to satisfy these annual distribution requirements.

It is possible that Aimco, from time to time, may not have sufficient cash to meet the 90% distribution requirement due to timing differences between (i) the actual receipt of cash (including receipt of distributions from the Aimco Operating Partnership) and (ii) the inclusion of certain items in income by Aimco for United States federal income tax purposes. In the event that such timing differences occur, in order to meet the 90% distribution requirement, Aimco may find it necessary to arrange for short-term, or possibly long-term, borrowings, or to pay dividends in the form of taxable distributions of property.

Under certain circumstances, Aimco may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in Aimco’s deduction for dividends paid for the earlier year. Thus, Aimco may be able to avoid losing its REIT status or being taxed on amounts distributed as deficiency dividends; however, Aimco will be required pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.

Failure to Qualify.  For violations of REIT requirements other than the gross income and asset tests, Aimco may maintain its REIT status if the violation is due to reasonable cause and not willful neglect and Aimco pays a $50,000 penalty for each such failure.

If Aimco fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, Aimco will be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular

94

corporate rates. Distributions to stockholders in any year in which Aimco fails to qualify will not be deductible by Aimco nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to stockholders that are individuals will generally be taxable at capital gains rates (through 2010), and, subject to certain limitations of the Internal Revenue Code, corporate distributees may be eligible for the dividends received deduction. Unless Aimco is entitled to relief under specific statutory provisions, Aimco would also be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances Aimco would be entitled to such statutory relief.

Tax Aspects of Aimco’s Investments in Partnerships

General.  Substantially all of Aimco’s investments are held indirectly through the Aimco Operating Partnership. In general, partnerships are “pass-through” entities that are not subject to United States federal income tax. Rather, partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject to tax thereon, without regard to whether the partners receive a distribution from the partnership. Aimco will include in its income its proportionate share of the foregoing partnership items for purposes of the various REIT income tests and in the computation of its REIT taxable income. Moreover, for purposes of the REIT asset tests, Aimco will include its proportionate share of assets held by the Subsidiary Partnerships.

Entity Classification.  Aimco’s direct and indirect investment in partnerships involves special tax considerations, including the possibility of a challenge by the IRS of the status of any of the Subsidiary Partnerships as a partnership (as opposed to as an association taxable as a corporation) for United States federal income tax purposes. If any of these entities were treated as an association for United States federal income tax purposes, it would be subject to an entity-level tax on its income. In such a situation, the character of Aimco’s assets and items of gross income would change and could preclude Aimco from satisfying the asset tests and the income tests, and in turn could prevent Aimco from qualifying as a REIT. See above for a discussion of the effect of Aimco’s failure to meet such tests for a taxable year. In addition, any change in the status of any of the Subsidiary Partnerships for tax purposes might be treated as a taxable event, in which case Aimco might incur a tax liability without any related cash distributions.

Tax Allocations with Respect to the Properties.  Under the Internal Revenue Code and the Treasury Regulations, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution, and the adjusted tax basis of such property at the time of contribution (a “Book-Tax Difference”). Such allocations are solely for United States federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. The Aimco Operating Partnership was formed by way of contributions of appreciated property. Consequently, allocations must be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership that holds appreciated property, Treasury Regulations provide for a similar allocation of such items to the other partners. These rules apply to the contribution by Aimco to the Aimco Operating Partnership of the cash proceeds received in any offerings of its stock.

In general, certain Common OP Unitholders will be allocated lower amounts of depreciation deductions for tax purposes and increased taxable income and gain on the sale by the Aimco Operating Partnership or other Subsidiary Partnerships of the contributed properties. This will tend to eliminate the Book-Tax Difference over the life of these partnerships. However, the special allocations do not always entirely rectify the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover basis of the contributed properties in the hands of the Aimco Operating Partnership or other Subsidiary Partnerships may cause Aimco to be allocated lower depreciation and other deductions, and possibly greater amounts of taxable income in the event of a sale of such contributed assets in excess of the economic or book income allocated to it as a result of such sale. This may cause Aimco to recognize taxable income in excess of cash proceeds, which might adversely affect Aimco’s ability to comply with the REIT distribution requirements.

95

With respect to any property purchased or to be purchased by any of the Subsidiary Partnerships (other than through the issuance of OP Units) subsequent to the formation of Aimco, such property will initially have a tax basis equal to its fair market value and the special allocation provisions described above will not apply.

Sale of the Properties.  Aimco’s share of any gain realized by the Aimco Operating Partnership or any other Subsidiary Partnership on the sale of any property held as inventory or primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a partnership’s trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. The Aimco Operating Partnership and the other Subsidiary Partnerships intend to hold their properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating the properties and to make such occasional sales of the properties, including peripheral land, as are consistent with Aimco’s investment objectives. However, no assurance can be given that any property sold by Aimco will not be treated as property held for sale to customers, or that Aimco can comply with certain safe-harbor provisions of the Internal Revenue Code that would prevent such treatment.

Taxation of Management Companies

A portion of the amounts to be used to fund distributions to stockholders is expected to come from distributions made by the management companies to the Aimco Operating Partnership, and interest paid by the management companies on certain notes held by the Aimco Operating Partnership. In general, the management companies pay United States federal, state and local income taxes on their taxable income at normal corporate rates. Any United States federal, state or local income taxes that the management companies are required to pay will reduce Aimco’s cash flow from operating activities and its ability to make payments to holders of its securities.

Taxation of Taxable Domestic Stockholders

Distributions.  Provided that Aimco qualifies as a REIT, distributions made to Aimco’s taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, dividends received from REITs are not eligible for taxation at the preferential 15% income tax rates for qualified dividends received by individuals from taxable C corporations. Stockholders that are individuals, however, are taxed at the preferential rates on dividends designated by and received from REITs to the extent that the dividends are attributable to (i) income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax, (ii) dividends received by the REIT from taxable C corporations, or (iii) income from the sales of appreciated property acquired by the REIT from C corporations in carryover basis transactions. Distributions (and retained long-term capital gains) that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent that they do not exceed Aimco’s actual net capital gain for the taxable year) without regard to the period for which the stockholder has held its stock. However, corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum United States federal rates of 15% (through 2010) in the case of stockholders who are individuals, and 35% in the case of stockholders that are corporations. In addition, net capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum United States federal income tax rate for taxpayers who are individuals to the extent of previously claimed real property depreciation.

Distributions in excess of current and accumulated earnings and profits will not be taxable to a stockholder to the extent that they do not exceed the adjusted basis of the stockholder’s shares in respect of which the distributions were made, but rather will reduce the adjusted basis of such shares. To the extent that such distributions exceed the adjusted basis of a stockholder’s shares in respect of which the distributions were made, they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for one year or less) provided that the shares are a capital asset in the hands of the stockholder. In addition, any dividend declared by Aimco in October, November or December of any year and payable to a stockholder of record on a specified date in any such month will be treated as both paid by Aimco and received by the stockholder on December 31 of such year,

96

provided that the dividend is actually paid by Aimco during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses of Aimco.

Dispositions of Aimco Stock.  In general, capital gains recognized by individuals and other non-corporate taxpayers upon the sale or disposition of Aimco stock will be subject to a maximum United States federal income tax rate of 15% (through 2010) if the Aimco Stock is held for more than 12 months and will be taxed at ordinary income rates (of up to 35% through 2010) if the Aimco stock is held for 12 months or less. Capital losses recognized by a stockholder upon the disposition of Aimco stock held for more than one year at the time of disposition will be a long-term capital loss. In addition, any loss upon a sale or exchange of shares of Aimco stock by a stockholder who has held such shares for six months or less (after applying certain holding period rules) will be treated as a long-term capital loss to the extent of distributions from Aimco required to be treated by such stockholder as long-term capital gain.

Taxation of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts (“Exempt Organizations”), generally are exempt from United States federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). The IRS has privately ruled that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Based on that ruling, Aimco believes that amounts distributed by Aimco to Exempt Organizations should generally not constitute UBTI. If an Exempt Organization finances its acquisition of Aimco stock with debt, however, a portion of its income from Aimco will constitute UBTI pursuant to the “debt-financed property” rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the Internal Revenue Code are subject to different UBTI rules, which generally will require them to characterize distributions from Aimco as UBTI. In addition, in certain circumstances, a pension trust that owns more than 10% of Aimco’s stock is required to treat a percentage of the dividends from Aimco as UBTI (the “UBTI Percentage”). The UBTI Percentage is the gross income derived by Aimco from an unrelated trade or business (determined as if Aimco were a pension trust) divided by the gross income of Aimco for the year in which the dividends are paid. The UBTI rule applies to a pension trust holding more than 10% of Aimco’s stock only if:

(a) the UBTI Percentage is at least 5%,

(b) Aimco qualifies as a REIT by reason of the modification of the 5/50 Rule that allows the beneficiaries of the pension trust to be treated as holding shares of Aimco in proportion to their actuarial interest in the pension trust, and

(c) either (A) one pension trust owns more than 25% of the value of Aimco’s stock or (B) a group of pension trusts each individually holding more than 10% of the value of Aimco’s stock collectively owns more that 50% of the value of Aimco’s stock.

The restrictions on ownership and transfer of Aimco’s stock should prevent an Exempt Organization from owning more than 10% of the value of Aimco’s stock.

State, Local and Foreign Taxes.  The Aimco Operating Partnership, OP Unitholders, Aimco and Aimco stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business, own property or reside. It should be noted that the Aimco Operating Partnership owns properties located in a number of states and local jurisdictions, and the Aimco Operating Partnership and OP Unitholders may be required to file income tax returns in some or all of those jurisdictions. The state, local or foreign tax treatment of the Aimco Operating Partnership and OP Unitholders and of Aimco and its stockholders may not conform to the United States federal income tax consequences discussed above. Consequently, prospective investors are urged to consult their tax advisors regarding the application and effect of state, local foreign tax laws on an investment in the Aimco Operating Partnership or Aimco.

97

Each limited partner is urged to consult his or her tax advisor regarding the specific tax consequences of the sales and related transactions, including the application of United States federal, state, local, foreign and other tax laws.

DESCRIPTION OF COMMON OP UNITS

The following description sets forth some general terms and provisions of the Common OP Units and the agreement of limited partnership of the Aimco Operating Partnership.

General.  The Aimco Operating Partnership is a limited partnership organized under the provisions of the Delaware Revised Uniform Limited Partnership Act (as amended from time to time, or any successor to such statute, the “Delaware LP Act”) and upon the terms and subject to the conditions set forth in its agreement of limited partnership. AIMCO-GP, Inc., a Delaware corporation and a wholly owned subsidiary of Aimco, is the sole general partner of the Aimco Operating Partnership. Another wholly owned subsidiary of Aimco, AIMCO-LP, Inc., a Delaware corporation (the “Special Limited Partner”), is a limited partner in the Aimco Operating Partnership. The term of the Aimco Operating Partnership commenced on May 16, 1994, and will continue indefinitely, unless the Aimco Operating Partnership is dissolved sooner under the provisions of the partnership agreement or as otherwise provided by law.

Purpose and Business.  The purpose and nature of the Aimco Operating Partnership is to conduct any business, enterprise or activity permitted by or under the Delaware LP Act, including, but not limited to, (i) to conduct the business of ownership, construction, development and operation of multifamily rental apartment communities, (ii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Delaware LP Act, or to own interests in any entity engaged in any business permitted by or under the Delaware LP Act, (iii) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, subsidiaries, business trusts, limited liability companies or other similar arrangements, and (iv) to do anything necessary or incidental to the foregoing; provided, however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit Aimco, in the sole and absolute discretion of AIMCO-GP, at all times to be classified as a REIT.

Management by the General Partner.  Except as otherwise expressly provided in the partnership agreement, all management powers over the business and affairs of the Aimco Operating Partnership are exclusively vested in AIMCO-GP. No limited partner of the Aimco Operating Partnership or any other person to whom one or more Common OP Units have been transferred (each, an “Assignee”) may take part in the operations, management or control (within the meaning of the Delaware LP Act) of the Aimco Operating Partnership’s business, transact any business in the Aimco Operating Partnership’s name or have the power to sign documents for or otherwise bind the Aimco Operating Partnership. The general partner may not be removed by the limited partners with or without cause, except with the consent of AIMCO-GP. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to AIMCO-GP under any other provision of the partnership agreement, AIMCO-GP, subject to the other provisions of the partnership agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Aimco Operating Partnership, to exercise all powers of the Aimco Operating Partnership and to effectuate the purposes of the Aimco Operating Partnership. The Aimco Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of properties) upon such terms as AIMCO-GP determines to be appropriate. The general partner is authorized to execute, deliver and perform specific agreements and transactions on behalf of the Aimco Operating Partnership without any further act, approval or vote of the limited partners.

Restrictions on General Partner’s Authority.  The general partner may not take any action in contravention of the partnership agreement. The general partner may not, without the prior consent of the limited partners, undertake, on behalf of the Aimco Operating Partnership, any of the following actions or enter into any transaction that would have the effect of such transactions: (i) except as provided in the partnership agreement, amend, modify or terminate the partnership agreement other than to reflect the admission, substitution, termination or withdrawal of partners; (ii) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Aimco Operating Partnership; (iii) institute any proceeding for bankruptcy on behalf of the Aimco Operating Partnership; or (iv) subject to specific exceptions, approve or

98

acquiesce to the transfer of the Aimco Operating Partnership interest of AIMCO-GP, or admit into the Aimco Operating Partnership any additional or successor general partners.

Additional Limited Partners.  The general partner is authorized to admit additional limited partners to the Aimco Operating Partnership from time to time, on terms and conditions and for such capital contributions as may be established by AIMCO-GP in its reasonable discretion. The net capital contribution need not be equal for all partners. No action or consent by the limited partners is required in connection with the admission of any additional limited partner. The general partner is expressly authorized to cause the Aimco Operating Partnership to issue additional interests (i) upon the conversion, redemption or exchange of any debt, Common OP Units or other securities issued by the Aimco Operating Partnership, (ii) for less than fair market value, so long as AIMCO-GP concludes in good faith that such issuance is in the best interests of AIMCO-GP and the Aimco Operating Partnership, and (iii) in connection with any merger of any other entity into the Aimco Operating Partnership if the applicable merger agreement provides that persons are to receive interests in the Aimco Operating Partnership in exchange for their interests in the entity merging into the Aimco Operating Partnership. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by AIMCO-GP, in its sole and absolute discretion without the approval of any limited partner, and set forth in a written document thereafter attached to and made an exhibit to the partnership agreement. Without limiting the generality of the foregoing, AIMCO-GP has authority to specify (a) the allocations of items of partnership income, gain, loss, deduction and credit to each such class or series of partnership interests; (b) the right of each such class or series of partnership interests to share in distributions; (c) the rights of each such class or series of partnership interests upon dissolution and liquidation of the Aimco Operating Partnership; (d) the voting rights, if any, of each such class or series of partnership interests; and (e) the conversion, redemption or exchange rights applicable to each such class or series of partnership interests. No person may be admitted as an additional limited partner without the consent of AIMCO-GP, which consent may be given or withheld in AIMCO-GP’s sole and absolute discretion.

Outstanding Classes of Units.  As of September 30, 2006, the Aimco Operating Partnership had issued and outstanding the following partnership interests:

Class	Interests Outstanding
Partnership Common Units		103,705,873
Class G Partnership Preferred Units		4,050,000
Class T Partnership Preferred Units		6,000,000
Class U Partnership Preferred Units		8,000,000
Class V Partnership Preferred Units		3,450,000
Class W Partnership Preferred Units		1,904,762
Class Y Partnership Preferred Units		3,450,000
Class One Partnership Preferred Units		90,000
Class Two Partnership Preferred Units		52,718
Class Three Partnership Preferred Units		1,464,173
Class Four Partnership Preferred Units		755,999
Class Five Partnership Preferred Units		68,671
Class Six Partnership Preferred Units		802,453
Class Seven Partnership Preferred Units		27,960
Class Eight Partnership Preferred Units		6,250
Class I High Performance Partnership Units		2,379,084
Class VII High Performance Partnership Units		4,109
Class VIII High Performance Partnership Units		5,000
Series A Community Reinvestment Act Perpetual Preferred Units		200
Class IX High Performance Partnership Units		5,000

Distributions.  Subject to the rights of holders of any outstanding Preferred OP Units, the partnership agreement requires AIMCO-GP to cause the Aimco Operating Partnership to distribute quarterly all, or such portion

99

as AIMCO-GP may in its sole and absolute discretion determine, of Available Cash (as defined in the partnership agreement) generated by the Aimco Operating Partnership during such quarter to AIMCO-GP, AIMCO-LP and the other holders of Common OP Units on the record date established by AIMCO-GP with respect to such quarter, in accordance with their respective interests in the Aimco Operating Partnership on such record date. Holders of any other Preferred OP Units issued in the future may have priority over AIMCO-GP, AIMCO-LP and holders of Common OP Units with respect to distributions of Available Cash, distributions upon liquidation or other distributions. Distributions payable with respect to any interest in the Aimco Operating Partnership that was not outstanding during the entire quarterly period in respect of which any distribution is made will be prorated based on the portion of the period that such interest was outstanding. The general partner in its sole and absolute discretion may distribute to the limited partners Available Cash on a more frequent basis and provide for an appropriate record date. The partnership agreement requires AIMCO-GP to take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the requirements for qualification as a REIT, to cause the Aimco Operating Partnership to distribute sufficient amounts to enable AIMCO-GP to transfer funds to Aimco and enable Aimco to pay stockholder dividends that will (i) satisfy the requirements (the “REIT Requirements”) for qualifying as a REIT under the Internal Revenue Code and the applicable Treasury Regulations and (ii) avoid any United States Federal income or excise tax liability of Aimco.

While some of the debt instruments to which the Aimco Operating Partnership is a party, including its credit facilities, contain restrictions on the payment of distributions to OP Unitholders, the debt instruments allow the Aimco Operating Partnership to distribute sufficient amounts to enable AIMCO-GP and the Special Limited Partner to transfer funds to Aimco which are then used to pay stockholder dividends thereby allowing Aimco to meet the REIT Requirements.

Distributions in Kind.  No Common OP Unitholder has any right to demand or receive property other than cash as provided in the partnership agreement. The general partner may determine, in its sole and absolute discretion, to make a distribution in kind of partnership assets to the Common OP Unitholders, and such assets will be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with the partnership agreement.

Distributions Upon Liquidation.  Subject to the rights of holders of any outstanding Preferred OP Units, net proceeds from the sale or other disposition of all or substantially all of the assets of the Aimco Operating Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Aimco Operating Partnership (a “Terminating Capital Transaction”), and any other cash received or reductions in reserves made after commencement of the liquidation of the Aimco Operating Partnership, will be distributed to the Common OP Unitholders in accordance with the partnership agreement.

Restricted Distributions.  The partnership agreement prohibits the Aimco Operating Partnership and AIMCO-GP, on behalf of the Aimco Operating Partnership, from making a distribution to any Common OP Unitholder on account of its interest in Common OP Units if such distribution would violate Section 17-607 of the Delaware LP Act or other applicable law.

Allocations of Net Income and Net Loss to OP Unitholders.  Net Income (as defined in the partnership agreement) and Net Loss (as defined in the partnership agreement) of the Aimco Operating Partnership will be determined and allocated with respect to each fiscal year of the Aimco Operating Partnership as of the end of each such year. Except as otherwise provided in the partnership agreement, an allocation to a Common OP Unitholder of a share of Net Income or Net Loss will be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss. Except as otherwise provided in the partnership agreement and subject to the terms of any outstanding Preferred OP Units, Net Income and Net Loss will be allocated to the holders of Common OP Units in accordance with their respective Common OP Units at the end of each fiscal year. The partnership agreement contains provisions for special allocations intended to comply with certain regulatory requirements, including the requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Except as otherwise provided in the partnership agreement and subject to the terms of any outstanding Preferred OP Units, for United States Federal income tax purposes under the Internal Revenue Code and the Treasury Regulations, each partnership item of income, gain, loss and deduction will be allocated among the

100

Common OP Unitholders in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated under the partnership agreement.

Withholding.  The Aimco Operating Partnership is authorized to withhold from or pay on behalf of or with respect to each limited partner any amount of United States federal, state, local or foreign taxes that AIMCO-GP determines that the Aimco Operating Partnership is required to withhold or pay with respect to any amount distributable or allocable to such limited partner under the partnership agreement.

Return of Capital.  No partner is entitled to interest on its capital contribution or on such partner’s capital account. Except (i) under the rights of redemption set forth in the partnership agreement, (ii) as provided by law, or (iii) under the terms of any outstanding Preferred OP Units, no partner has any right to demand or receive the withdrawal or return of its capital contribution from the Aimco Operating Partnership, except to the extent of distributions made under the partnership agreement or upon termination of the Aimco Operating Partnership. Except to the extent otherwise expressly provided in the partnership agreement and subject to the terms of any outstanding Preferred OP Units, no limited partner or Assignee will have priority over any other limited partner or Assignee either as to the return of capital contributions or as to profits, losses or distributions.

Redemption Rights of Qualifying Parties.  At any time after the first anniversary of becoming a holder of Common OP Units, each Common OP Unitholder and some Assignees have the right, subject to the terms and conditions set forth in the partnership agreement, to require the Aimco Operating Partnership to redeem all or a portion of the Common OP Units held by such party in exchange for shares of Class A Common Stock or a cash amount equal to the value of such shares, as the Aimco Operating Partnership may elect (a “Redemption”). On or before the close of business on the fifth business day after a Common OP Unitholder gives AIMCO-GP a Notice of Redemption, the Aimco Operating Partnership may, in its sole and absolute discretion but subject to the restrictions on the ownership of Aimco stock imposed under Aimco’s charter and the transfer restrictions and other limitations thereof, elect to cause Aimco to acquire some or all of the tendered Common OP Units from the tendering party in exchange for Class A Common Stock, based on an exchange ratio of one share of Class A Common Stock for each Common OP Unit, subject to antidilution adjustments as set forth in the partnership agreement. The partnership agreement does not obligate Aimco or AIMCO-GP to register, qualify or list any Class A Common Stock issued in exchange for Common OP Units with the SEC, with any state securities commissioner, department or agency, or with any stock exchange. In the absence of a future registration of the Common OP Units issued in the Affiliated Contribution, Class A Common Stock issued in exchange for Common OP Units under the partnership agreement will contain legends regarding restrictions under the Securities Act of 1933 and applicable state securities laws as are necessary or advisable in order to ensure compliance with securities laws.

Partnership Right to Call Limited Partner Interest.  Notwithstanding any other provision of the partnership agreement, on and after the date on which the aggregate percentage interests of the limited partners, other than AIMCO-LP, are less than one percent (1%), the Aimco Operating Partnership will have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding limited partner interests (other than AIMCO-LP’s interest) by treating any limited partner as if such limited partner had tendered for Redemption under the partnership agreement the amount of Common OP Units specified by AIMCO-GP, in its sole and absolute discretion, by notice to the limited partner.

Transfers and Withdrawals.

Restrictions on Transfer.  The partnership agreement restricts the transferability of Common OP Units. Any transfer or purported transfer of a Common OP Unit not made in accordance with the partnership agreement will be null and void ab initio. Until the expiration of one year from the date on which a Common OP Unitholder acquired Common OP Units, subject to some exceptions, such Common OP Unitholder may not transfer all or any portion of its Common OP Units to any transferee without the consent of AIMCO-GP, which consent may be withheld in its sole and absolute discretion. After the expiration of one year from the date on which a Common OP Unitholder acquired Common OP Units, such Common OP Unitholder has the right to transfer all or any portion of its Common OP Units to any person, subject to the satisfaction of specific conditions specified in the partnership agreement, including AIMCO-GP’s right of first refusal.

101

It is a condition to any transfer (whether or not such transfer is effected before or after the one year holding period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor limited partner under the partnership agreement with respect to such Common OP Units, and no such transfer (other than under a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) will relieve the transferor Partner of its obligations under the partnership agreement without the approval of AIMCO-GP, in its sole and absolute discretion.

In connection with any transfer of Common OP Units, AIMCO-GP will have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed transfer may be effected without registration under the Securities Act of 1933, and will not otherwise violate any United States federal or state securities laws or regulations applicable to the Aimco Operating Partnership or the Common OP Units transferred.

No transfer by a limited partner of its Common OP Units (including any Redemption or any acquisition of Common OP Units by AIMCO-GP or by the Aimco Operating Partnership) may be made to any person if (i) in the opinion of legal counsel for the Aimco Operating Partnership, it would result in the Aimco Operating Partnership being treated as an association taxable as a corporation, or (ii) such transfer is effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of the Internal Revenue Code Section 7704.

Substituted Limited Partners.  No limited partner will have the right to substitute a transferee as a limited partner in its place. A transferee of the interest of a limited partner may be admitted as a substituted limited partner only with the consent of AIMCO-GP, which consent may be given or withheld by AIMCO-GP in its sole and absolute discretion. If AIMCO-GP, in its sole and absolute discretion, does not consent to the admission of any permitted transferee as a substituted limited partner, such transferee will be considered an Assignee for purposes of the partnership agreement. An Assignee will be entitled to all the rights of an assignee of a limited partnership interest under the Delaware LP Act, including the right to receive distributions from the Aimco Operating Partnership and the share of net income, net losses and other items of income, gain, loss, deduction and credit of the Aimco Operating Partnership attributable to the Common OP Units assigned to such transferee and the rights to transfer the Common OP Units provided in the partnership agreement, but will not be deemed to be a holder of Common OP Units for any other purpose under the partnership agreement, and will not be entitled to effect a consent or vote with respect to such Common OP Units on any matter presented to the limited partners for approval (such right to consent or vote, to the extent provided in this partnership agreement or under the Delaware LP Act, fully remaining with the transferor limited partner).

Withdrawals.  No limited partner may withdraw from the Aimco Operating Partnership other than as a result of a permitted transfer of all of such limited partner’s Common OP Units in accordance with the partnership agreement, with respect to which the transferee becomes a substituted limited partner, or under a Redemption (or acquisition by Aimco) of all of such limited partner’s Common OP Units.

Restrictions on the General Partner.  The general partner may not transfer any of its general partner interest or withdraw from the Aimco Operating Partnership unless (i) the limited partners’ consent or (ii) immediately after a merger of AIMCO-GP into another entity, substantially all of the assets of the surviving entity, other than the general partnership interest in the Aimco Operating Partnership held by AIMCO-GP, are contributed to the Aimco Operating Partnership as a capital contribution in exchange for Common OP Units.

Amendment of the Partnership Agreement.

By the General Partner Without the Consent of the Limited Partners.  The general partner has the power, without the consent of the limited partners, to amend the partnership agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of AIMCO-GP or surrender any right or power granted to AIMCO-GP or any affiliate of AIMCO-GP for the benefit of the limited partners; (2) to reflect the admission, substitution or withdrawal of partners or the termination of the Aimco Operating Partnership in accordance with the partnership agreement; (3) to reflect a change that is of an inconsequential nature and does not adversely affect the limited partners in any material respect, or to cure any ambiguity, correct or supplement any provision in the partnership agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under the partnership agreement that will not be inconsistent with law or with the provisions of the partnership agreement; (4) to satisfy any requirements, conditions or guidelines contained in any

102

order, directive, opinion, ruling or regulation of a United States federal or state agency or contained in United States federal or state law; (5) to reflect such changes as are reasonably necessary for Aimco to maintain its status as a REIT; and (6) to modify the manner in which capital accounts are computed (but only to the extent set forth in the definition of “Capital Account” in the partnership agreement or contemplated by the Internal Revenue Code or the Treasury Regulations).

With the Consent of the Limited Partners.  Amendments to the partnership agreement may be proposed by AIMCO-GP or by holders of a majority of the outstanding Common OP Units and other classes of units which have the same voting rights as holders of Common OP Units, excluding AIMCO-LP (a “Majority in Interest”). Following such proposal, AIMCO-GP will submit any proposed amendment to the limited partners. The general partner will seek the written consent of a Majority in Interest of the limited partners on the proposed amendment or will call a meeting to vote thereon and to transact any other business that AIMCO-GP may deem appropriate.

Procedures For Actions and Consents of Partners.  Meetings of the partners may be called by AIMCO-GP and will be called upon the receipt by AIMCO-GP of a written request by a Majority in Interest of the limited partners. Notice of any such meeting will be given to all partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Each meeting of partners will be conducted by AIMCO-GP or such other person as AIMCO-GP may appoint under such rules for the conduct of the meeting as AIMCO-GP or such other person deems appropriate in its sole and absolute discretion. Whenever the vote or consent of partners is permitted or required under the partnership agreement, such vote or consent may be given at a meeting of partners or may be given by written consent. Any action required or permitted to be taken at a meeting of the partners may be taken without a meeting if a written consent setting forth the action so taken is signed by partners holding a majority of outstanding Common OP Units (or such other percentage as is expressly required by the partnership agreement for the action in question).

Records and Accounting; Fiscal Year.  The partnership agreement requires AIMCO-GP to keep or cause to be kept at the principal office of the Aimco Operating Partnership those records and documents required to be maintained by the Delaware LP Act and other books and records deemed by AIMCO-GP to be appropriate with respect to the Aimco Operating Partnership’s business. The books of the Aimco Operating Partnership will be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as AIMCO-GP determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Aimco Operating Partnership, AIMCO-GP and Aimco may operate with integrated or consolidated accounting records, operations and principles. The fiscal year of the Aimco Operating Partnership is the calendar year.

Reports.  As soon as practicable, but in no event later than one hundred and five (105) days after the close of each calendar quarter and each fiscal year, AIMCO-GP will cause to be mailed to each limited partner, of record as of the last day of the calendar quarter or as of the close of the fiscal year, as the case may be, a report containing financial statements of the Aimco Operating Partnership, or of Aimco if such statements are prepared solely on a consolidated basis with Aimco, for such calendar quarter or fiscal year, as the case may be, presented in accordance with generally accepted accounting principles, and such other information as may be required by applicable law or regulation or as AIMCO-GP determines to be appropriate. Statements included in quarterly reports are not audited. Statements included in annual reports are audited by a nationally recognized firm of independent public accountants selected by AIMCO-GP.

Tax Matters Partner.  The general partner is the “tax matters partner” of the Aimco Operating Partnership for United States Federal income tax purposes. The tax matters partner is authorized, but not required, to take certain actions on behalf of the Aimco Operating Partnership with respect to tax matters. In addition, AIMCO-GP will arrange for the preparation and timely filing of all returns with respect to partnership income, gains, deductions, losses and other items required of the Aimco Operating Partnership for United States federal and state income tax purposes and will use all reasonable effort to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by limited partners for United States federal and state income tax reporting purposes. The limited partners will promptly provide AIMCO-GP with such information as may be reasonably requested by AIMCO-GP from time to time.

103

Dissolution and Winding Up.

Dissolution.  The Aimco Operating Partnership will dissolve, and its affairs will be wound up, upon the first to occur of any of the following (each, a “Liquidating Event”): (i) December 31, 2093; (ii) an event of withdrawal, as defined in the Delaware LP Act (including, without limitation, bankruptcy), of the sole general partner unless, within ninety (90) days after the withdrawal, a “majority in interest” (as such phrase is used in Section 17-801(3) of the Delaware LP Act) of the remaining partners agree in writing, in their sole and absolute discretion, to continue the business of the Aimco Operating Partnership and to the appointment, effective as of the date of withdrawal, of a successor general partner; (iii) an election to dissolve the Aimco Operating Partnership made by AIMCO-GP in its sole and absolute discretion, with or without the consent of the limited partners; (iv) entry of a decree of judicial dissolution of the Aimco Operating Partnership under the provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction (as defined in the Aimco Operating Partnership Agreement; or (vi) the Redemption (or acquisition by Aimco, AIMCO-GP and/or AIMCO-LP) of all Common OP Units other than Common OP Units held by AIMCO-GP or AIMCO-LP.

Winding Up.  Upon the occurrence of a Liquidating Event, the Aimco Operating Partnership will continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and partners. The general partner (or, in the event that there is no remaining general partner or AIMCO-GP has dissolved, become bankrupt within the meaning of the Delaware LP Act or ceased to operate, any person elected by a Majority in Interest of the limited partners) will be responsible for overseeing the winding up and dissolution of the Aimco Operating Partnership and will take full account of the Aimco Operating Partnership’s liabilities and property, and the Aimco Operating Partnership property will be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by AIMCO-GP, include Aimco stock) will be applied and distributed in the following order: (i) first, to the satisfaction of all of the Aimco Operating Partnership’s debts and liabilities to creditors other than the partners and their Assignees (whether by payment or the making of reasonable provision for payment thereof); (ii) second, to the satisfaction of all the Aimco Operating Partnership’s debts and liabilities to AIMCO-GP (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under the partnership agreement; (ii) third, to the satisfaction of all of the Aimco Operating Partnership’s debts and liabilities to the other partners and any Assignees (whether by payment or the making of reasonable provision for payment thereof); (iv) fourth, to the satisfaction of all liquidation preferences of outstanding Preferred OP Units, if any; and (v) the balance, if any, to AIMCO-GP, the limited partners and any Assignees in accordance with and in proportion to their positive capital account balances, after giving effect to all contributions, distributions and allocations for all periods.

DESCRIPTION OF CLASS A COMMON STOCK

General.  As of September 30, 2006, Aimco’s charter authorizes the issuance of up to 510,587,500 shares of capital stock with a par value of $0.01 per share, of which 426,157,736 shares were classified as Class A Common Stock. As of September 30, 2006, there were 95,909,969 shares of Class A Common Stock issued and outstanding. The Class A Common Stock is traded on the NYSE under the symbol “AIV.” Computershare Trust Company, N.A. serves as transfer agent and registrar of the Class A Common Stock.

Holders of the Class A Common Stock are entitled to receive dividends, when and as declared by Aimco’s Board of Directors, out of funds legally available therefor. The holders of shares of Class A Common Stock, upon any liquidation, dissolution or winding up of Aimco, are entitled to receive ratably any assets remaining after payment in full of all liabilities of Aimco and any liquidation preferences of preferred stock and equity stock. The shares of Class A Common Stock possess ordinary voting rights for the election of directors of Aimco and in respect of other corporate matters, each share entitling the holder thereof to one vote. Holders of shares of Class A Common Stock do not have cumulative voting rights in the election of directors, which means that holders of more than 50% of the shares of Class A Common Stock voting for the election of directors can elect all of the directors if they choose to do so and the holders of the remaining shares cannot elect any directors. Holders of shares of Class A Common Stock do not have preemptive rights which means they have no right to acquire any additional shares of Class A Common Stock that may be issued by Aimco at a subsequent date.

Restrictions on Ownership and Transfer.  For Aimco to qualify as a REIT under the Internal Revenue Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer

104

individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year, and the shares of capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Because Aimco’s Board of Directors believes that it is essential for Aimco to continue to qualify as a REIT and to provide additional protection for Aimco’s stockholders in the event of certain transactions, Aimco’s Board of Directors has adopted provisions of the charter restricting the acquisition of shares of Class A Common Stock. Subject to certain exceptions specified in the charter, no holder may own, or be deemed to own by virtue of various attribution and constructive ownership provisions of the Internal Revenue Code and Rule 13d-3 under the Exchange Act, more than 8.7% (or 15% in the case of certain pension trusts described in the Internal Revenue Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the outstanding shares of Class A Common Stock. For purposes of calculating the amount of stock owned by a given individual, the individual’s Class A Common Stock and Common OP Units are aggregated. Under certain conditions, Aimco’s Board of Directors may waive the ownership limit. However, in no event may such holder’s direct or indirect ownership of Class A Common Stock exceed 9.8% of the total outstanding shares of Class A Common Stock. As a condition of such waiver, the Aimco Board of Directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of Aimco. If shares of Class A Common Stock in excess of the ownership limit, or shares of Class A Common Stock that would cause the REIT to be beneficially owned by fewer than 100 persons, or that would result in Aimco being “closely held,” within the meaning of Section 856(h) of the Internal Revenue Code, or that would otherwise result in Aimco failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer shall be null and void to the intended transferee, and the intended transferee would acquire no rights to the stock. Shares of Class A Common Stock transferred in excess of the ownership limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by Aimco. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the ownership limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (i) such transferee’s original purchase price (or the market value of such shares on the date of the violative transfer if purportedly acquired by gift or devise) and (ii) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of stock held in such trust are purchasable by Aimco for a 90-day period at a price equal to the lesser of the price paid for the stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the stock on the date that Aimco determines to purchase the stock. The 90-day period commences on the date of the violative transfer or the date that Aimco’s Board of Directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class A Common Stock bear a legend referring to the restrictions described above.

All persons who own, directly or by virtue of the attribution provisions of the Internal Revenue Code and Rule 13d-3 under the Exchange Act, more than a specified percentage of the outstanding shares of Class A Common Stock must file a written statement or an affidavit with Aimco containing the information specified in the Aimco charter within 30 days after January 1 of each year. In addition, each stockholder shall upon demand be required to disclose to Aimco in writing such information with respect to the direct, indirect and constructive ownership of shares as Aimco’s Board of Directors deems necessary to comply with the provisions of the Internal Revenue Code applicable to a REIT or to comply with the requirements of any taxing authority or governmental agency.

The ownership limitations may have the effect of precluding acquisition of control of Aimco by a third party unless Aimco’s Board of Directors determines that maintenance of REIT status is no longer in the best interests of Aimco.

Provisions of Maryland Law Applicable to Capital Stock.

Business Combinations.  Under Maryland law, certain “business combinations” (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation’s shares or an affiliate or associate of the corporation who, at any time within the two-year period

105

prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an “Interested Stockholder”) or an affiliate or associate thereof are prohibited for five years after the most recent date on which the Interested Stockholder became an Interested Stockholder. Thereafter, any such business combination must be recommended by the Board of Directors of the corporation and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding voting shares of the corporation, voting together as a single voting group, and (ii) two-thirds of the votes entitled to be cast by holders of outstanding voting shares of the corporation other than shares held by the Interested Stockholder or an affiliate or associate of the Interested Stockholder with whom the business combination is to be effected, unless, among other conditions, the corporation’s stockholders receive a specified minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. For purposes of determining whether a person is an Interested Stockholder of Aimco, ownership of Common OP Units will be treated as beneficial ownership of the shares of Class A Common Stock which may be issued in exchange for the Common OP Units when such Common OP Units are tendered for redemption. The business combination statute could have the effect of discouraging offers to acquire Aimco and of increasing the difficulty of consummating any such offer. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the Board of Directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder. The Aimco Board of Directors has not passed such a resolution.

Control Share Acquisitions.  Maryland law provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror or by officers or directors who are employees of the corporation. “Control shares” are voting shares of stock that, if aggregated with all other shares of stock previously acquired by that person, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

•  one-tenth or more but less than one-third;

•  one-third or more but less than a majority; or

•  a majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. For purposes of determining whether a person or entity is an Interested Stockholder of Aimco, ownership of Common OP Units will be treated as beneficial ownership of the shares of Class A Common Stock which may be issued in exchange for the Common OP Units when such Common OP Units are tendered for redemption. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the corporation’s Board of Directors to call a special meeting of stockholders, to be held within 50 days of demand, to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value, determined without regard to the absence of voting rights, as of the date of the last control share acquisition or of any meeting of stockholders at which the voting rights of such shares were considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of the appraisal rights may not be less than the highest price per share paid in the control share acquisition, and certain limitations and restrictions otherwise applicable to the exercise of dissenters’ rights do not apply in the context of a control share acquisition.

The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted by the corporation’s articles of incorporation or bylaws prior to the control share acquisition. No such exemption appears in Aimco’s charter or bylaws. The control share acquisition statute could have the effect of discouraging offers to acquire Aimco and of increasing the difficulty of consummating any such offer.

106

COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP

The information below highlights a number of the significant differences between your partnership and the Aimco Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. These comparisons are intended to assist you in understanding how your investment will change after completion of the Transactions and liquidation and dissolution of your partnership, if you elect to receive Common OP Units in lieu of cash with respect to the Affiliated Contribution.

Your Partnership	Aimco Operating Partnership
Form of Organization and Assets Owned
Your Partnership is a limited partnership organized under Illinois law. VMS is a general partnership organized under Illinois law.	The Aimco Operating Partnership is organized as a Delaware limited partnership. The Aimco Operating Partnership owns interests (either as a Delaware limited partnership directly or through subsidiaries) in numerous multifamily apartment properties. The Aimco Operating Partnership conducts substantially all of the operations of Aimco, a corporation organized under Maryland and as a REIT.
Duration of Existence
Your Partnership was presented to limited partners as a finite life investment, with limited partners to receive regular cash distributions out of your partnership’s profits and losses. The termination date of your partnership is December 31, 2030. The termination date of VMS is September 26, 2044. If VMS cannot refinance or repay its indebtedness at or prior to maturity on January 1, 2008, your partnership and VMS will be required to sell the Properties and liquidate under the VMS plan of reorganization.	The term of the Aimco Operating Partnership continues indefinitely, unless the Aimco Operating Partnership is dissolved sooner pursuant to the terms of the Aimco Operating Partnership Agreement or as provided by law.
Purpose and Permitted Activities
Your Partnership was formed for the purpose of serving as general partner of VMS. VMS was formed for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash distributions to its limited partners.	The purpose of the Aimco Operating Partnership is to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Delaware LP Act, provided that such business is to be conducted in a manner that permits Aimco to be qualified as a REIT, unless Aimco ceases to qualify as a REIT. The Aimco Operating Partnership is authorized to perform any and all acts for the furtherance of the purposes and business of the Aimco Operating Partnership, provided that the Aimco Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of Aimco to continue to qualify as a REIT, (ii) subject Aimco to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such action, or inaction, is specifically consented to by Aimco). Subject to the foregoing, the Aimco Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The Aimco Operating Partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.

107

Your Partnership	Aimco Operating Partnership
Additional Equity
The Managing General Partner of your Partnership is authorized to issue additional limited partnership interests in your Partnership and may admit additional limited partners up to an aggregate capital contribution of $136,800,000 by all limited partners of the Partnerships. The capital contribution need not be equal for all limited partners.	The general partner is authorized to issue additional partnership interests in the Aimco Operating Partnership for any partnership purpose from time to time to the limited partners and to other persons, and to admit such other persons as additional limited partners, on terms and conditions and for such capital contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the Common OP Unitholders is required in connection with the admission of any additional OP Unitholder. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the Aimco Operating Partnership Agreement.
Restrictions Upon Related Party Transactions
Except for loans made by your Managing General Partner or its affiliates to your Partnership, your agreement of limited partnership does not restrict related party transactions.	The Aimco Operating Partnership may lend or contribute funds or other assets to its subsidiaries or other persons in which it has an equity investment, and such persons may borrow funds from the Aimco Operating Partnership, on terms and conditions established in the sole and absolute discretion of the general partner. To the extent consistent with the business purpose of the Aimco Operating Partnership and the permitted activities of the general partner, the Aimco Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the Aimco Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the Aimco Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the Aimco Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies
The Managing General Partner of your Partnership is authorized to borrow money in the ordinary course of business and as security therefor to mortgage all or any part of the Properties in addition to obtaining	The Aimco Operating Partnership Agreement contains no restrictions on borrowings, and the general partner has full power and authority to borrow money on behalf of the Aimco Operating Partnership. The Aimco Operating Partnership has credit agreements

108

Your Partnership	Aimco Operating Partnership
loans specifically provided for in your Partnership’s agreement of limited partnership.	that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists
Your Partnership’s agreement of limited partnership entitles the limited partners to have access to the current list of the names and addresses of all limited partners at all reasonable times at the principal office of your Partnership.	Each Common OP Unitholder has the right, upon written demand with a statement of the purpose of such demand and at such Common OP Unitholder’s own expense, to obtain a current list of the name and last known business, residence or mailing address of the general partner and each other Common OP Unitholder.
Management Control
Subject to the limitations set forth under applicable law and the terms of your Partnership’s agreement of limited partnership, the Managing General Partner of your Partnership has the power to do all things set forth in your Partnership’s agreement of limited partnership. The Managing General Partner represents your Partnership in all transactions with third parties. No limited partner has any right or power to take part in any way in the management of your Partnership business except as may be expressly provided in your Partnership’s agreement of limited partnership or by applicable statutes.	All management powers over the business and affairs of the Aimco Operating Partnership are vested in AIMCO-GP, Inc., which is the general partner. No Common OP Unitholder has any right to participate in or exercise control or management power over the business and affairs of the Aimco Operating Partnership. The Common OP Unitholders have the right to vote on certain matters described below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the Aimco Operating Partnership Agreement, the general partner, subject to the other provisions of the Aimco Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Aimco Operating Partnership, to exercise all powers of the Aimco Operating Partnership and to effectuate the purposes of the Aimco Operating Partnership. The Aimco Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the Aimco Operating Partnership as are provided in the Aimco Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the Aimco Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification
Under your Partnership’s agreement of limited partnership, the Managing General Partner will not incur any liability to your Partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by your Partnership’s agreement of limited partnership. In addition, your Partnership will, to the extent permitted by law, indemnify the Managing General Partner against and from any personal loss, liability	Notwithstanding anything to the contrary set forth in the Aimco Operating Partnership Agreement, the general partner is not liable to the Aimco Operating Partnership for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law of any act or omission if the general partner acted in good faith. The Aimco Operating Partnership Agreement provides for indemnification of Aimco, or any director or officer of Aimco (in its capacity as the previous general

109

Your Partnership	Aimco Operating Partnership
(including attorneys’ fees) or damage incurred by it as the result of any act or omission in its capacity as managing general partner unless such loss, liability or damage results from fraud, malfeasance, bad faith, breach of fiduciary duty, gross negligence or intentional misconduct of the Managing General Partner.	partner of the Aimco Operating Partnership), the general partner, any officer or director of the general partner or the Aimco Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the Aimco Operating Partnership, as set forth in the Aimco Operating Partnership Agreement. The Delaware LP Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the SEC and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act of 1933 is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions
Under your Partnership’s agreement of limited partnership, the limited partners may remove a general partner for cause following written notice to the general partner and upon a vote of the limited partners owning 50% or more of the outstanding units. A limited partner may not transfer his interests without the written consent of the general partner which may be withheld at the sole discretion of the general partner.	Except in limited circumstances, the general partner has exclusive management power over the business and affairs of the Aimco Operating Partnership. The general partner may not be removed as general partner of the Aimco Operating Partnership by the OP Unitholders with or without cause. Under the Aimco Operating Partnership Agreement, the general partner may, in its sole discretion, prevent a transferee of a Common OP Unit from becoming a substituted limited partner pursuant to the Aimco Operating Partnership Agreement. The general partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the Aimco Operating Partnership. Additionally, the Aimco Operating Partnership Agreement contains restrictions on the ability of Common OP Unitholders to transfer their Common OP Units.
Amendment of Your Partnership Agreement
The Managing General Partner may, and, at the request of a limited partner owning at least 10% of the units, shall, submit any proposed amendment to your partnership agreement. The Managing General Partner may include its recommendation as to such proposal. Limited partners owning 51% or more of the units must approve any proposed amendment, except that any amendment that causes a reduction in the limited partners’ rights and interests requires the consent of limited partners owning 100% of the units.	With the exception of certain circumstances set forth in the Aimco Operating Partnership Agreement, whereby the general partner may, without the consent of the Common OP Unitholders, amend the Aimco Operating Partnership Agreement, amendments to the Aimco Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding Aimco and certain other limited exclusions (a “Majority in Interest”). Amendments to the Aimco Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP

110

Your Partnership	Aimco Operating Partnership
	Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon.
Compensation and Fees
In addition to the right to distributions in respect of its partnership interest and reimbursement for out-of-pocket expenses as set forth in your Partnership’s agreement of limited partnership, the Managing General Partner and its affiliates may receive fees for services rendered to your Partnership or VMS.	The general partner does not receive compensation for its services as general partner of the Aimco Operating Partnership. However, the general partner is entitled to payments, allocations and distributions in its capacity as general partner of the Aimco Operating Partnership. In addition, the Aimco Operating Partnership is responsible for all expenses incurred relating to the Aimco Operating Partnership’s ownership of its assets and the operation of the Aimco Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the Aimco Operating Partnership receive compensation for their services.
Liability of Investors
Under your Partnership’s agreement of limited partnership, the liability of each of the limited partners for its share of the losses or debts of your Partnership is limited to the total capital contribution of such limited partner.	Except for fraud, willful misconduct or gross negligence, no OP Unitholder has personal liability for the Aimco Operating Partnership’s debts and obligations, and liability of the OP Unitholders for the Aimco Operating Partnership’s debts and obligations is generally limited to the amount of their investment in the Aimco Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the Aimco Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of Common OP Units as a group to make certain amendments to the Aimco Operating Partnership Agreement or to take other action pursuant to the Aimco Operating Partnership Agreement constituted participation in the “control” of the Aimco Operating Partnership’s business, then a holder of Common OP Units could be held liable under certain circumstances for the Aimco Operating Partnership’s obligations to the same extent as the general partner.
Fiduciary Duties
Under your Partnership’s agreement of limited partnership, the Managing General Partner must act as a fiduciary with respect of the assets and business of the Partnership. The Managing General Partner must use its best efforts to do all things and perform such duties as may be reasonably necessary to the successful operation of your Partnership. The Managing General Partner must devote such of its time to your Partnership business as may be reasonably necessary to carry on and conduct your Partnership’s business. However, except as	Unless otherwise provided for in the relevant partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The Aimco Operating Partnership Agreement expressly authorizes the general partner to enter into, on behalf of the Aimco

111

Your Partnership	Aimco Operating Partnership
specifically provided in your Partnership’s agreement of limited partnership, the partners may engage in whatever activities they choose, whether the same be competitive with your Partnership or otherwise, including without limitation, the acquisition, ownership, financing, syndication, development, improvement, leasing, operation, management and brokerage of real property. In general, your partnership’s agreement of limited partnership and the Aimco Operating Partnership Agreement have limitations on general partners but such limitations differ and provide more protection for the general partner of the Aimco Operating Partnership.	Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the Aimco Operating Partnership and the general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The Aimco Operating Partnership Agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the Aimco Operating Partnership, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith.
United States Federal Income Taxation
In general, there are no material differences between the taxation of your Partnership and the Aimco Operating Partnership.	The Aimco Operating Partnership is not subject to federal income taxes. Instead, each holder of Common OP Units includes in income its allocable share of the Aimco Operating Partnership’s taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the Aimco Operating Partnership may be subject to the passive activity limitations. If an investment in a Common OP Unit is treated as a passive activity, income and loss from the Aimco Operating Partnership generally can be offset against income and loss from other investments that constitute “passive activities” (unless the Aimco Operating Partnership is considered a “publicly traded partnership”, in which case income and loss from the Aimco Operating Partnership can only be offset against other income and loss from the Aimco Operating Partnership). Income of the Aimco Operating Partnership, however, attributable to dividends from the management subsidiaries or interest paid by the management subsidiaries does not qualify as passive activity income and cannot be offset against losses from “passive activities.” Cash distributions by the Aimco Operating Partnership are not taxable to a holder of Common OP Units except to the extent they exceed such Partner’s basis in its interest in the Aimco Operating Partnership (which will include such Common OP Unitholder’s allocable share of the Aimco Operating Partnership’s nonrecourse debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the Aimco Operating Partnership owns property or transacts business, even if they are not residents of those states. The Aimco Operating Partnership may be required to pay state income taxes in certain states.

112

COMPARISON OF YOUR PARTNERSHIP UNITS AND COMMON OP UNITS

The information below highlights a number of the significant differences between units of your Partnership and Common OP Units of the Aimco Operating Partnership. These comparisons are intended to assist you in understanding how your investment will be changed after completion of the Transactions and liquidation and dissolution of your Partnership, if you elect to receive Common OP Units in lieu of cash with respect to the Affiliated Contribution.

Your Units	Common OP Units
Nature of Investment
The partnership interests in your Partnership constitute equity interests entitling each partner to its pro rata share of distributions to be made to the partners of your Partnership.	The Common OP Units constitute equity interests entitling each Common OP Unitholder to such partner’s pro rata share of cash distributions made from Available Cash (as such term is defined in the Aimco Operating Partnership Agreement) to the partners of the Aimco Operating Partnership. To the extent the Aimco Operating Partnership sells or refinances its assets, the net proceeds therefrom generally will be retained by the Aimco Operating Partnership for working capital and new investments rather than being distributed to the Common OP Unitholders (including Aimco).
Voting Rights
Under your Partnership’s agreement of limited partnership, upon the vote of the limited partners owning 51% or more of the outstanding units, the limited partners may approve most amendments of your Partnership’s agreement of limited partnership. A general partner may cause the dissolution of your Partnership by retiring. In such event, the limited partners holding more than 50% of the outstanding units may, within sixty days of such occurrence, vote to continue the business of your Partnership. If no general partner remains in office, all of the limited partners may elect to reform your Partnership and elect a successor general partner whereupon your Partnership will be dissolved and all of the assets and liabilities of your Partnership will be contributed to a new partnership and all parties to your Partnership’s agreement of limited partnership will become parties to such new partnership. In general, you have greater voting rights in your Partnership than you will have as a Common OP Unitholder. OP Unitholders cannot remove the general partner of the Aimco Operating Partnership.	Under the Aimco Operating Partnership Agreement, the Common OP Unitholders have voting rights only with respect to certain limited matters such as certain amendments and termination of the Aimco Operating Partnership Agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors and certain transfers by the general partner of its interest in the Aimco Operating Partnership or the admission of a successor general partner. Under the Aimco Operating Partnership Agreement, the general partner has the power to effect the acquisition, sale, transfer, exchange or other disposition of any assets of the Aimco Operating Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Aimco Operating Partnership) or the merger, consolidation, reorganization or other combination of the Aimco Operating Partnership with or into another entity, all without the consent of the OP Unitholders. The general partner may cause the dissolution of the Aimco Operating Partnership by an “event of withdrawal,” as defined in the Delaware LP Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a “majority in interest,” as defined in the Delaware LP Act, agree in writing, in their sole and absolute discretion, to continue the business of the Aimco Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the Aimco Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. OP Unitholders cannot remove the general partner of the Aimco Operating Partnership with or without cause.

113

Your Units	Common OP Units
Distributions
Your Partnership’s agreement of limited partnership specifies how the cash available for distribution, whether arising from operations or sales or refinancing, is to be shared among the partners. Distributions will be made at least quarterly. The distributions payable to the partners are not fixed in amount and depend upon the operating results and net sales or refinancing proceeds available from the disposition of your Partnership’s assets. Your Partnership has made no distributions in the past and is not projected to make distributions in 2006. All of the cash flow from your Partnership is currently dedicated to the payment of operating expenses, capital expenditures and debt service.	Subject to the rights of holders of any outstanding Preferred OP Units, the Aimco Operating Partnership Agreement requires the general partner to cause the Aimco Operating Partnership to distribute quarterly all, or such portion as the general partner may in its sole and absolute discretion determine, of Available Cash (as defined in the Aimco Operating Partnership Agreement) generated by the Aimco Operating Partnership during such quarter to the general partner, AIMCO-LP and the holders of Common OP Units on the record date established by the general partner with respect to such quarter, in accordance with their respective interests in the Aimco Operating Partnership on such record date. Holders of any other Preferred OP Units issued in the future may have priority over the general partner, AIMCO-LP and holders of Common OP Units with respect to distributions of Available Cash, distributions upon liquidation or other distributions. The general partner in its sole and absolute discretion may distribute to the OP Unitholders Available Cash on a more frequent basis and provide for an appropriate record date. The Aimco Operating Partnership Agreement requires the general partner to take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with Aimco’s qualification as a REIT, to cause the Aimco Operating Partnership to distribute sufficient amounts to enable the general partner to transfer funds to Aimco and enable Aimco to pay stockholder dividends that will (i) satisfy the requirements for qualifying as a REIT under the Internal Revenue Code and the Treasury Regulations and (ii) avoid any United States federal income or excise tax liability of Aimco.
Liquidity and Transferability/Redemption Rights
A limited partner may transfer his units to any person and such person will become a substitute limited partner if: (1) a written assignment has been duly executed and acknowledged by the assignor and assignee and delivered to the Managing General Partner, (2) the approval of the Managing General Partner, which may be withheld in its sole discretion and which will be withheld if the transfer would result in the termination of your Partnership for tax purposes, (3) the assignee has agreed to be bound by all of the terms of your Partnership’s agreement of limited partnership and absolute discretion of the Managing General Partner has been granted, (4) the assignee represents he is a citizen and resident of the U.S. and that he is not acquiring the interest with a view to resell the interest, and (5) the assignor and assignee have complied with such other conditions as set forth in your Partnership’s agreement of limited partnership. There are no redemption rights associated with your units.	There is no public market for the Common OP Units. The Aimco Operating Partnership Agreement restricts the transferability of the Common OP Units. Until the expiration of one year from the date on which a Common OP Unitholder acquired Common OP Units, subject to certain exceptions, such Common OP Unitholder may not transfer all or any portion of its Common OP Units to any transferee without the consent of the general partner, which consent may be withheld in its sole and absolute discretion. After the expiration of one year, such OP Unitholder has the right to transfer all or any portion of its Common OP Units to any person, subject to the satisfaction of certain conditions specified in the Aimco Operating Partnership Agreement, including the general partner’s right of first refusal. Generally, after a holding period of twelve months, holders of Common OP Units may redeem such units for Class A Common stock or cash, at the option of the Aimco Operating Partnership.

114

SOURCE AND AMOUNT OF FUNDS

The Managing General Partner estimates that the total amount of funds required to pay fees and expenses related to the Transactions is approximately $5,500,000, as well as up to $230,078,260 necessary to fund the Affiliated Contribution. The funds required to consummate the Transactions have been or will be obtained from cash on hand or borrowings under existing sources of credit.

The Aimco Operating Partnership has a $450 million revolving credit facility with a syndicate of financial institutions. The Aimco Operating Partnership, Aimco and AIMCO/Bethesda Holdings, Inc., an Aimco subsidiary, are the borrowers. The annual interest rate under the credit facility is based on either LIBOR or a base rate, plus, in either case, an applicable margin. The margin ranges between 1.50% and 2.00% in the case of LIBOR-based loans and between 0% and 0.25% in the case of base rate loans, based upon Aimco’s leverage ratio. The default rate of interest for the loan is equal to the rate described above plus 3%. The credit facility matures on May 1, 2009.

As of September 30, 2006, the Aimco Operating Partnership had approximately $182.3 million in cash and cash equivalents and approximately $262.3 million available for borrowing under its revolving credit facility. If any funds are borrowed under its lines of credit to finance the Affiliated Contribution, the Aimco Operating Partnership, on behalf of Aimco Properties, LLC, intends to repay those amounts out of future working capital.

FEES AND EXPENSES

Except as set forth in this proxy statement-prospectus, the Managing General Partner, the Partnerships, VMS, Aimco Properties, LLC, the Aimco Operating Partnership and Aimco will not pay any fees or commissions to any broker, dealer or other person in connection with the Transactions. The Managing General Partner has retained The Altman Group, Inc. to act as the information agent (the “Information Agent”) in connection with the Transactions. The Information Agent may contact holders of limited partner interests by mail, e-mail, telephone, telex, telegraph and in person and may request brokers, dealers and other nominee limited partners to forward materials relating to the Transactions to beneficial owners of the limited partnership interests. VMS will pay the Information Agent reasonable and customary compensation for its services in connection with the Transactions, plus reimbursement for out-of-pocket expenses, and will indemnify it against certain liabilities and expenses in connection therewith, including liabilities under the United States federal securities laws. VMS will also pay all costs and expenses of filing, printing and mailing the proxy statement-prospectus and any related legal fees and expenses.

Below is an itemized list of the estimated expenses incurred and to be incurred in connection with preparing and delivering this proxy statement-prospectus:

Information Agent Fees	$	1,000
Printing Fees		10,000
Postage Fees		5,300
Tax and Accounting Fees		400,000
Legal Fees		400,000
Total	$	816,300

Aimco Properties, LLC will pay closing costs associated with the Affiliated Contribution as provided in the Contribution Agreement. Closing costs associated with Unaffiliated Sales will be allocated between VMS and potential purchasers in accordance with the Contribution Agreements ultimately executed in connection with such Unaffiliated Sales.

APPRAISAL RIGHTS

Limited partners are not entitled to dissenters’ appraisal rights under Illinois law or the Partnerships’ partnership agreements in connection with the contribution to the Aimco Operating Partnership or sales to third party purchasers. However, pursuant to the terms of the Contribution Agreement, VMS, the Partnerships and Aimco Properties, LLC will provide each limited partner with contractual dissenters’ appraisal rights with respect to the Affiliated Contribution that are generally based upon the dissenters’ appraisal rights that a limited partner would

115

have were the limited partner a shareholder in a corporate merger under the corporation laws of the state of Illinois. This appraisal proceeding will be decided by arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator who will follow the statutory provisions otherwise governing such dissenters’ appraisal rights and who will conduct the proceedings in Denver, Colorado. By electing to seek such rights, the parties will have agreed that any arbitration award can be appealed in the Federal District Court located in Denver, Colorado. These appraisal rights enable a limited partner to obtain an arbitrated appraisal of the value of the limited partner’s interest in the respective Partnership, and entitle a limited partner to receive the arbitrated appraised value of the limited partner’s interest in such Partnership in lieu of accepting the distribution resulting from the Affiliated Contribution. A description of the appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this proxy statement-prospectus as Annex C. Prosecution of these contractual appraisal rights will involve an arbitration proceeding, and consideration paid to a limited partner after the prosecution of such contractual appraisal rights, which will take a period of time that cannot be predicted with accuracy, will be a cash payment, resulting in a taxable event to such limited partner, unless Aimco Properties, LLC has or obtains a reasonable belief that the Limited Partner is an accredited investor.

GENERAL LEGAL MATTERS

The Managing General Partner is not aware of any licenses or regulatory permits that would be material to the business of VMS and the Partnerships, taken as a whole, and that might be adversely affected by the Transactions as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the completion of the Transactions. While there is no present intent to delay the Affiliated Contribution or Unaffiliated Sales pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to VMS or the Partnerships or their respective businesses, or that certain parts of their business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action.

No provision has been made by the Managing General Partner, VMS, the Partnerships, Aimco, the Aimco Operating Partnership, Aimco Properties, LLC, or any of its affiliates at such party’s expense for the provision of counsel or appraisal services, other than the appraisal of the market value of the Properties as described in this proxy statement-prospectus.

LEGAL MATTERS

Alston & Bird LLP will deliver an opinion to the effect that the Common OP Units offered by this proxy statement-prospectus will be validly issued. Alston & Bird LLP will deliver an opinion with regard to the material United States federal income tax consequences of the Transactions. Alston & Bird LLP has previously performed certain legal services on behalf of Aimco and the Aimco Operating Partnership and their affiliates.

The validity of the Class A Common Stock issuable upon redemption of the Common OP Units will be passed upon by DLA Piper Rudnick Gray Cary LLP, Baltimore, Maryland.

Aimco expects to receive an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom LLP to the effect that, beginning with Aimco’s initial taxable year ended December 31, 1994, Aimco was organized in conformity with the requirements for qualification as a REIT under the Code and that its actual method of operation has enabled, and its proposed method of operation will enable, Aimco to meet the requirements for qualification and taxation as a REIT. This opinion will be based upon certain representations and covenants made by Aimco, including representations regarding its income, properties and the past, present and future conduct of its business operations. Furthermore, this opinion will be conditioned on, and Aimco’s qualification and taxation as a REIT depend on, Aimco’s ability to meet, through actual annual operating results, the various REIT qualification tests, the results of which will not be reviewed by Skadden, Arps, Slate, Meagher & Flom LLP. Accordingly, no assurance can be given that the actual results of Aimco’s operations for any taxable year satisfy such requirements for qualification and taxation as a REIT. Such requirements are discussed in more detail under the heading “UNITED STATES FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS.”

116

The opinion of Skadden, Arps, Slate, Meagher & Flom LLP will be expressed as of its date, and Skadden, Arps, Slate, Meagher & Flom LLP will have no obligation to advise Aimco of any change in applicable law or any change in matters stated, represented or assumed after the date of such opinion. You should be aware that opinions of counsel are not binding on the IRS or any court.

EXPERTS

The consolidated financial statements and schedules of Apartment Investment and Management Company and Aimco Properties, L.P. appearing in their Current Reports on Form 8-K filed on December 6, 2006 with the Securities and Exchange Commission and their managements’ assessments of the effectiveness of internal control over financial reporting as of December 31, 2005 included in their Annual Reports on Form 10-K for the year ended December 31, 2005, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports incorporated herein by reference. Such consolidated financial statements and managements’ assessments have been incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

The combined financial statements and schedule of VMS National Properties Joint Venture appearing in its Annual Report (Form 10-K) for the year ended December 31, 2005 and included and incorporated by reference in the Proxy Statement-Prospectus of Apartment Investment and Management Company, Aimco Properties, L.P. and VMS National Properties Joint Venture, which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere and incorporated by reference herein, and are included and incorporated by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

INFORMATION INCORPORATED BY REFERENCE

The Commission allows us to “incorporate by reference” in this prospectus the information in other documents that we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the Commission will automatically update and supersede information contained in documents filed earlier with the Commission or contained in this prospectus or a prospectus supplement. We incorporate by reference the documents listed below and any future filings made with the Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, between the date of this prospectus and the termination of the offering and also between the date of the initial registration statement and prior to effectiveness of the registration statement:

VMS:

•  annual report on Form 10-K for the fiscal year ended December 31, 2005, filed on March 31, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended March 31, 2006, filed on May 12, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended June 30, 2006, filed on August 14, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended September 30, 2006, filed on November 14, 2006.

•  current reports on Form 8-K filed on August 25, 2006, September 27, 2006, November 28, 2006, December 4, 2006, December 8, 2006, December 15, 2006, December 18, 2006, December 20, 2006, January 3, 2007, and January 9, 2007.

Aimco Properties, L.P.:

•  annual report on Form 10-K for the fiscal year ended December 31, 2005, filed on March 9, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended March 31, 2006, filed on May 5, 2006.

117

•  quarterly report on Form 10-Q for the quarterly period ended June 30, 2006, filed on August 4, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended September 30, 2006, filed on November 7, 2006.

•  current reports on Form 8-K filed on February 17, 2006, March 27, 2006, June 2, 2006, July 5, 2006, August 22, 2006, September 22, 2006, and December 6, 2006.

Apartment Investment and Management Company:

•  annual report on Form 10-K for the fiscal year ended December 31, 2005, filed on March 8, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended March 31, 2006, filed on May 5, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended June 30, 2006, filed on August 4, 2006.

•  quarterly report on Form 10-Q for the quarterly period ended September 30, 2006, filed on November 7, 2006.

•  proxy statement relating to the annual meeting of stockholders held on May 10, 2006 filed on March 27, 2006.

•  current reports on Form 8-K filed on February 15, 2006, February 17, 2006, February 21, 2006, March 27, 2006, April 3, 2006, June 2, 2006, June 20, 2006, July 5, 2006, August 22, 2006, September 22, 2006, and December 6, 2006.

This proxy statement-prospectus is part of a registration statement on Form S-4 that has been filed by Aimco and the Aimco Operating Partnership with the Commission under the Securities Act. This proxy statement-prospectus does not contain all of the information in the registration statement. Certain parts of the registration statement or the exhibits and schedules thereto have been omitted, as permitted by the rules and regulations of the Commission. You may inspect and copy the registration statement, including exhibits, at the Commission’s public reference room or website. Statements in this proxy statement-prospectus about the contents of any contract or other document are summaries of the terms of such contracts or documents and are not necessarily complete. You should refer to the copy of each contract or other document that has been filed as an exhibit to the registration statement for complete information.

The Managing General Partner of the Partnerships will furnish without charge to you, upon written or oral request, a copy of any or all of the documents incorporated by reference, including the exhibits or schedules to these documents. You should direct any such requests to The Altman Group, Inc., by mail at 1200 Wall Street, 3rd Floor, Lyndhurst, New Jersey 07071 or fax at (201) 460-0050 or by telephone at (800) 217-9608 (toll-free).

118

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Unaudited pro forma financial information is presented to show how the Transactions and the refinancing of existing indebtedness might have affected the Partnerships’ historical combined financial statements if the Transactions and the refinancing had been consummated at an earlier time. Two separate presentations of pro forma financial information are provided on the pages that follow. The first presentation, which includes “Assuming the Affiliated Contribution” in the presentation headings, reflects how the Partnerships’ historical combined financial statements might have been affected if the Affiliated Contribution had been consummated, without giving effect to the Unaffiliated Sales. The second presentation, which includes “Assuming the Unaffiliated Sales” in the presentation headings, reflects how the Partnerships’ historical combined financial statements might have been affected if the Unaffiliated Sales had been consummated, without giving effect to the Affiliated Contribution. Both of these presentations give effect to the refinancing of mortgages and other indebtedness as described in the proxy statement-prospectus. The potential effects on the Partnerships’ historical combined financial statements in which the refinancing is consummated, but neither the Unaffiliated Sales nor the Affiliated Contribution are consummated, are shown in both presentations in the columns entitled “Pro Forma after Refinancing.” The possible outcome in which the refinancing, the Unaffiliated Sales and the Affiliated Contribution all are consummated is not presented herein; in that outcome, substantially all of the Partnerships’ assets and liabilities would be liquidated, its business operations would cease, and there would be no significant amounts to be reported in the unaudited pro forma combined financial statements.

The unaudited pro forma combined financial statements have been prepared based on certain pro forma adjustments to the Partnerships’ historical consolidated financial statements for the nine months ended September 30, 2006 and year ended December 31, 2005. The pro forma adjustments are based upon available information and certain assumptions that the Managing General Partner believes are reasonable under the circumstances. The pro forma adjustments to the historical combined statements of operations assume that the refinancing and Transactions were consummated on January 1, 2005, but do not reflect the nonrecurring effects of those transactions, such as nonrecurring gains resulting from debt extinguishment and property sales. The pro forma adjustments to the historical combined balance sheet as of September 30, 2006 assume that the refinancing and Transactions were consummated on that date.

The unaudited pro forma combined financial information is for illustrative and informational purposes only and does not purport to be indicative of the financial position and results of operations that would have actually been achieved had the transactions occurred for the periods indicated or results which may be achieved in the future.

The unaudited pro forma combined financial statements should be read in conjunction with the Partnerships’ historical financial statements, the separate unaudited combined financial statements of the Affiliated Contribution Properties, and the separate unaudited combined financial statements of the Unaffiliated Sale Properties appearing elsewhere in this proxy statement-prospectus.

119

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED BALANCE SHEET ASSUMING THE AFFILIATED CONTRIBUTION (UNAUDITED)

As of September 30, 2006

The following unaudited pro forma combined balance sheet is presented as if the following transactions had been consummated on September 30, 2006: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the estimated distribution of excess refinancing proceeds to partners and (iii) the completion of the Affiliated Contribution and the estimated distribution to partners of any cash proceeds therefrom. This unaudited pro forma combined balance sheet should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus) and the unaudited financial statements of VMS for the nine months ended September 30, 2006 (included in VMS’s report on Form 10-Q for the quarterly period ended September 30, 2006 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined balance sheet is unaudited and is not necessarily indicative of what the actual financial position of VMS would have been had the aforementioned transactions actually occurred on September 30, 2006, nor does it purport to represent the financial position of VMS as of future dates.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			after			Affiliated
	Historical			Proceeds			Indebtedness			Refinancing			Contribution
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands)
Assets:
Cash and cash equivalents	$	1,864		$	202,961	(1)	$	(202,960	)(1)	$	1,865		$	—	(1)	$	1,865
Receivables and deposits		2,479						(995	)(2)		1,484			(1,011	)(2)		473
Restricted escrows		245						(245	)(2)		—						—
Other assets		1,137			4,589	(2)					5,726			(4,548	)(3)		1,178
Investment properties
Land		13,404									13,404			(10,315	)(2)		3,089
Buildings and related personal property		165,282									165,282			(105,479	)(2)		59,803
		178,686			—			—			178,686			(115,794	)		62,892
Less accumulated depreciation		(132,436	)								(132,436	)		83,783	(2)		(48,653	)
		46,250			—			—			46,250			(32,011	)		14,239
	$	51,975		$	207,550		$	(204,200	)	$	55,325		$	(37,570	)	$	17,755
Liabilities and Partners’ (Deficit) Capital:
Liabilities:
Accounts payable	$	1,371								$	1,371		$	(635	)(2)	$	736
Tenant security deposit liabilities		1,006									1,006			(743	)(2)		263
Accrued property taxes		1,035									1,035			(291	)(2)		744
Other liabilities		750									750			(425	)(2)		325
Accrued interest		664					$	(664	)(3)		—						—
Due to affiliates		12,512						(12,401	)(4)		111			(58	)(2)		53
Mortgage notes payable		117,704		$	207,550	(3)		(117,704	)(3)		207,550			(168,000	)(4)		39,550
Mortgage participation liability		39,742						(19,362	)(5)		20,380			(20,380	)(5)		—
Notes payable		42,060						(42,060	)(4)		—						—
Deferred gain on extinguishment of debt		42,225						(42,225	)(6)		—						—
Partners’ (Deficit) Capital		(207,094	)		—			30,216	(7)		(176,878	)		152,962	(6)		(23,916	)
	$	51,975		$	207,550		$	(204,200	)	$	55,325		$	(37,570	)	$	17,755

See accompanying notes to the pro forma combined financial statements.

120

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED STATEMENT OF OPERATIONS ASSUMING
THE AFFILIATED CONTRIBUTION (UNAUDITED)
For the Nine Months Ended September 30, 2006

The following unaudited pro forma combined statement of operations is presented as if the following transactions had been consummated on January 1, 2005: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the estimated distribution of excess refinancing proceeds to partners and (iii) the completion of the Affiliated Contribution. This unaudited pro forma combined statement of operations should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus) and the unaudited financial statements of VMS for the nine months ended September 30, 2006 (included in VMS’s report on Form 10-Q for the quarterly period ended September 30, 2006 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined statement of operations is unaudited and is not necessarily indicative of what the actual results would have been had the aforementioned transactions actually occurred on January 1, 2005, nor does it purport to represent the operations of VMS for future periods.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			after			Affiliated
	Historical			Proceeds			Indebtedness			Refinancing			Contribution
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands, except per limited partnership interest data)
Revenues:
Rental income	$	23,948								$	23,948		$	(16,634	)(1)	$	7,314
Other income		2,210									2,210			(1,256	)(1)		954
Casualty gains		538									538			(10	)(1)		528
Total revenues		26,696			—			—			26,696			(17,900	)		8,796
Expenses:
Operating		10,067									10,067			(5,952	)(1)		4,115
Property management fees to an affiliate		1,024									1,024			(702	)(1)		322
General and administrative		468									468			(245	)(1)		223
Depreciation		5,889									5,889			(3,747	)(1)		2,142
Interest		23,275		$	10,586	(1)	$	(12,293	)(1)		21,568			(15,474	)(1)		6,094
Property taxes		1,749									1,749			(1,059	)(1)		690
Total expenses		42,472			10,586			(12,293	)		40,765			(27,179	)		13,586
Net (loss) income	$	(15,776	)	$	(10,586	)	$	12,293		$	(14,069	)	$	9,279		$	(4,790	)
Net (loss) income allocated to general partners (2%)	$	(316	)	$	(212	)	$	246		$	(281	)	$	186		$	(96	)
Net (loss) income allocated to limited partners (98%)		(15,460	)		(10,374	)		12,047			(13,788	)		9,093			(4,694	)
	$	(15,776	)	$	(10,586	)	$	12,293		$	(14,069	)	$	9,279		$	(4,790	)
Net (loss) income per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(16,970	)	$	(11,388	)	$	13,224		$	(15,134	)	$	9,982		$	(5,153	)
Portfolio II (267 interests issued and outstanding)	$	(16,970	)	$	(11,388	)	$	13,225		$	(15,135	)	$	9,982		$	(5,153	)

See accompanying notes to the pro forma combined financial statements.

121

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED STATEMENT OF OPERATIONS ASSUMING
THE AFFILIATED CONTRIBUTION (UNAUDITED)
For the Year Ended December 31, 2005

The following unaudited pro forma combined statement of operations is presented as if the following transactions had been consummated on January 1, 2005: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the estimated distribution of excess refinancing proceeds to partners and (iii) the completion of the Affiliated Contribution. This unaudited pro forma combined statement of operations should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined statement of operations is unaudited and is not necessarily indicative of what the actual results would have been had the aforementioned transactions actually occurred on January 1, 2005, nor does it purport to represent the operations of VMS for future periods.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			after			Affiliated
	Historical			Proceeds			Indebtedness			Refinancing			Contribution
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands, except per limited partnership interest data)
Revenues:
Rental income	$	30,207								$	30,207		$	(20,432	)(1)	$	9,775
Other income		2,282									2,282			(1,414	)(1)		868
Casualty gains		564									564			(275	)(1)		289
Total revenues		33,053			—			—			33,053			(22,121	)		10,932
Expenses:
Operating		12,655									12,655			(7,667	)(1)		4,989
Property management fees to an affiliate		1,278									1,278			(859	)(1)		419
General and administrative		686									686			(359	)(1)		327
Depreciation		7,614									7,614			(4,846	)(1)		2,768
Interest		18,088		$	14,006	(1)	$	(10,560	)(1)		21,534			(15,711	)(1)		5,823
Property taxes		2,187									2,187			(1,385	)(1)		802
Total expenses		42,508			14,006			(10,560	)		45,954			(30,826	)		15,128
Net (loss) income	$	(9,455	)	$	(14,006	)	$	10,560		$	(12,901	)	$	8,705		$	(4,196	)
Net (loss) income allocated to general partners (2%)	$	(189	)	$	(280	)	$	211		$	(258	)	$	174		$	(84	)
Net (loss) income allocated to limited partners (98%)		(9,266	)		(13,726	)		10,349			(12,643	)		8,531			(4,112	)
	$	(9,455	)	$	(14,006	)	$	10,560		$	(12,901	)	$	8,705		$	(4,196	)
Net (loss) income per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(10,171	)	$	(15,066	)	$	11,360		$	(13,878	)	$	9,364		$	(4,514	)
Portfolio II (267 interests issued and outstanding)	$	(10,172	)	$	(15,067	)	$	11,360		$	(13,878	)	$	9,364		$	(4,515	)

See accompanying notes to the pro forma combined financial statements.

122

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO PRO FORMA FINANCIAL STATEMENTS ASSUMING THE AFFILIATED
CONTRIBUTION
(Unaudited)
(in thousands)

Pro Forma Combined Balance Sheet as of September 30, 2006

(a) Reflects the historical combined balance sheet of VMS as of September 30, 2006.

(b) Reflects the refinancing of the mortgage indebtedness of the Properties on September 30, 2006 based on estimated mortgage terms, which are based on correspondence and discussion with the potential lender.

        (1) Reflects the estimated net cash proceeds from the new mortgage loans.

        (2) Reflects the estimated direct costs incurred in connection with the new mortgage loans.

        (3) Reflects the aggregate mortgage principal balance of the new mortgage indebtedness, consisting of $168,000 for the Affiliated Contribution Properties and $39,550 for the Unaffiliated Sale Properties.

(c) Reflects use of refinancing proceeds for the repayment of the existing senior and junior mortgage indebtedness of the Properties on September 30, 2006.

        (1) Reflects the estimated cash used to pay existing mortgage principal and accrued interest, advances from affiliates, the mortgage participation liability attributable to the refinancing, notes payable, and distribution to the partners. Netted in the amount is cash received from the close-out of existing mortgage escrow accounts (see notes below for further information).

        (2) Reflects the close-out of existing mortgage escrow accounts in connection with the repayment of existing mortgage indebtedness.

        (3) Reflects the payoff of existing mortgage indebtedness principal and accrued interest.

        (4) Reflects the repayment of advances from an affiliate of the Managing General Partner, including accrued interest, and payment of bankruptcy claims to affiliates of the Managing General Partner.

        (5) Reflects the payment of the mortgage participation liability to the extent required based on the amount available of refinancing proceeds in excess of senior mortgage indebtedness payments. The mortgage participation liability within these pro forma financial statements is referenced as “residual to MF VMS interest” elsewhere in the proxy statement-prospectus, such as in “Special Factors — Estimated Distributions and Tax Consequences”.

        (6) Reflects the recognition of deferred gain in connection with the payoff of the existing mortgage indebtedness to which the deferred gain relates (see “Special Factors — Background and Reasons for the Transactions”).

        (7) Reflects the recognition of the $42,225 deferred gain (as discussed in note (c)(6) above) and the recognition of a $61 overaccrual of bankruptcy claims, partially offset by the estimated distribution of remaining refinancing proceeds of $12,070 to the partners.

(d) Reflects the pro forma combined balance sheet of VMS as of September 30, 2006, after the refinancing of the indebtedness of the Properties on September 30, 2006.

(e) Reflects the Affiliated Contribution on September 30, 2006.

        (1) The Affiliated Contribution has no net effect on cash balances. To the extent that cash is received in connection with the Affiliated Contribution, it is used to repay the related balance of the mortgage participation liability and to fund partners distributions.

        (2) Reflects the balances of assets and liabilities transferred to Aimco Properties, LLC in connection with the Affiliated Contribution, net of adjustments related to the refinancing.

        (3) Reflects the balance of other assets totaling $768 transferred to Aimco Properties, LLC in connection with the Affiliated Contribution and the write-off of $3,780 in estimated direct costs incurred in connection with the refinancing of the Affiliated Contribution Properties.

123

        (4) Reflects the principal amount of refinanced indebtedness related to the Affiliated Contribution Properties that is assumed by Aimco Properties, LLC in connection with the Affiliated Contribution.

        (5) Reflects adjustments to (i) accrete the mortgage participation liability by an estimated $10,281 to reflect the estimated amount payable based on the fair value of consideration being received for the Affiliated Contribution Properties and (ii) reduce the mortgage participation liability by an estimated $30,661, representing the amount paid to fully satisfy the liability related to the Affiliated Contribution Properties.

        (6) Reflects the estimated $198,067 deemed capital contribution, representing the amount by which the consideration being received from Aimco Properties, LLC exceeds the carrying amount of net assets being transferred to Aimco Properties, LLC in connection with the Affiliated Contribution (see “Special Factors — Estimated Distributions and Tax Consequences — Accounting Treatment by the Partnerships”). This is partially offset by the estimated $30,661 distribution of net proceeds to the partners and the recognition of expenses totaling an estimated $14,444 consisting primarily of the write-off of refinancing costs (see note (e)(3) above) and the accretion of the mortgage participation liability related to the Affiliated Contribution Properties (see note (e)(5) above).

Pro Forma Combined Statement of Operations — For the Nine Months Ended September 30, 2006

(a) Reflects the historical combined statement of operations of VMS for the nine months ended September 30, 2006.

(b) Reflects the refinancing of the mortgage indebtedness related to the Properties on January 1, 2005 based on estimated mortgage terms, which are based on correspondence and discussions with the potential lender. For the Unaffiliated Sale Properties, such terms reflect an initial principal balance of $39,550, a variable interest rate equal to the Fannie Mae Discount Mortgage Backed Security rate plus 105 basis points (assumed to be 6.27%, the applicable rate at September 30, 2006) and monthly principal and interest payments based on a 30-year amortization period. Direct financing costs related to the refinancing are estimated at $809. For the Affiliated Contribution Properties, such terms reflect an initial principal balance of $168,000, a fixed interest rate of 6.16% and monthly interest only payments. Direct financing costs related to the refinancing are estimated at $3,780.

        (1) Reflects the interest on new mortgage indebtedness related to the Properties, including amortization of related direct financing costs.

(c) Reflects the repayment of the senior and junior mortgage indebtedness of the Properties on January 1, 2005.

        (1) Reflects the reversal of interest expense related to the existing mortgage indebtedness, advances from an affiliate of the Managing General Partner and mortgage participation liability accretion adjustments due to payoff of related balances in connection with the refinancing on January 1, 2005.

(d) Reflects the pro forma combined statement of operations of VMS for the nine months ended September 30, 2006, after giving effect to the refinancing of the indebtedness of the Properties on January 1, 2005. The pro forma amounts do not reflect a nonrecurring debt extinguishment of $42,225 that would be recognized upon the payoff of the Properties’ existing indebtedness (see note (c)(6) to the pro forma combined balance sheet as of September 30, 2006).

(e) Reflects the Affiliated Contribution on January 1, 2005. A nonrecurring loss of $3,780, representing estimated direct costs incurred in connection with the refinancing, would be recognized upon the Affiliated Contribution.

        (1) Reflects the reversal of the actual results of operations related to the Affiliated Contribution Properties for the nine months ended September 30, 2006, net of adjustments related to refinancing and mortgage participation liability accretion.

Pro Forma Combined Statement of Operations — For the Year Ended December 31, 2005

(a) Reflects the historical combined statement of operations of VMS for the year ended December 31, 2005.

(b) Reflects the refinancing of the mortgage indebtedness related to the Properties on January 1, 2005 based on estimated mortgage terms, which are based on correspondence and discussions with the potential lender. For the Unaffiliated Sale Properties, such terms reflect an initial principal balance of $39,550, a variable interest rate equal to the Fannie Mae Discount Mortgage Backed Security rate plus 105 basis points (assumed to be

124

6.27%, the applicable rate at September 30, 2006) and monthly principal and interest payments based on a 30-year amortization period. Direct financing costs related to the refinancing are estimated at $809. For the Affiliated Contribution Properties, such terms reflect an initial principal balance of $168,000, a fixed interest rate of 6.16% and monthly interest only payments. Direct financing costs related to the refinancing are estimated at $3,780.

        (1) Reflects the interest on new mortgage indebtedness related to the Properties, including amortization of related direct financing costs.

(c) Reflects the repayment of the senior and junior mortgage indebtedness of the Properties on January 1, 2005.

        (1) Reflects the reversal of interest expense related to the existing mortgage indebtedness, advances from an affiliate of the Managing General Partner and mortgage participation liability accretion adjustments due to payoff of related balances in connection with the refinancing on January 1, 2005.

(d) Reflects the pro forma combined statement of operations of VMS for the year ended December 31, 2005, after giving effect to the refinancing of the indebtedness of the Properties on January 1, 2005. The pro forma amounts do not reflect a nonrecurring debt extinguishment of $42,225 that would be recognized upon the payoff of the Properties’ existing indebtedness (see note (c)(6) to the pro forma combined balance sheet as of September 30, 2006).

(e) Reflects the Affiliated Contribution on January 1, 2005. A nonrecurring loss of $3,780, representing estimated direct costs incurred in connection with the refinancing, would be recognized upon the Affiliated Contribution.

        (1) Reflects the reversal of the actual results of operations related to the Affiliated Contribution Properties for the year ended December 31, 2005, net of adjustments related to refinancing and mortgage participation liability accretion.

125

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED BALANCE SHEET ASSUMING THE UNAFFILIATED SALES
(UNAUDITED)
As of September 30, 2006

The following unaudited pro forma combined balance sheet is presented as if the following transactions had been consummated on September 30, 2006: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the distribution of excess refinancing proceeds to partners and (iii) the completion of the Unaffiliated Sales. This unaudited pro forma combined balance sheet should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus), the unaudited financial statements of VMS for the nine months ended September 30, 2006 (included in VMS’s report on Form 10-Q for the quarterly period ended September 30, 2006 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined balance sheet is unaudited and is not necessarily indicative of what the actual financial position of VMS would have been had the aforementioned transactions actually occurred on September 30, 2006, nor does it purport to represent the financial position of VMS as of future dates.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			after			Unaffiliated
	Historical			Proceeds			Indebtedness			Refinancing			Sales
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands)
Assets:
Cash and cash equivalents	$	1,864		$	202,961	(1)	$	(202,960	)(1)	$	1,865		$	—	(1)	$	1,865
Receivables and deposits		2,479						(995	)(2)		1,484			(473	)(2)		1,011
Restricted escrows		245						(245	)(2)		—						—
Other assets		1,137			4,589	(2)					5,726			(1,178	)(3)		4,548
Investment properties																	—
Land		13,404									13,404			(3,089	)(2)		10,315
Buildings and related personal property		165,282									165,282			(59,803	)(2)		105,479
		178,686			—			—			178,686			(62,892	)		115,794
Less accumulated depreciation		(132,436	)								(132,436	)		48,653	(2)		(83,783	)
		46,250			—			—			46,250			(14,239	)		32,011
	$	51,975		$	207,550		$	(204,200	)	$	55,325		$	(15,890	)	$	39,435
Liabilities and Partners’ (Deficit) Capital:
Liabilities:
Accounts payable	$	1,371								$	1,371		$	(736	)(2)	$	635
Tenant security deposit liabilities		1,006									1,006			(263	)(2)		743
Accrued property taxes		1,035									1,035			(744	)(2)		291
Other liabilities		750									750			(325	)(2)		425
Accrued interest		664					$	(664	)(3)		—						—
Due to affiliates		12,512						(12,401	)(4)		111			(53	)(2)		58
Mortgage notes payable		117,704		$	207,550	(3)		(117,704	)(3)		207,550			(39,550	)(4)		168,000
Mortgage participation liability		39,742						(19,362	)(5)		20,380			(13,871	)(5)		6,509
Notes payable		42,060						(42,060	)(4)		—						—
Deferred gain on extinguishment of debt		42,225						(42,225	)(6)		—						—
Partners’ (Deficit) Capital		(207,094	)		—			30,216	(7)		(176,878	)		39,652			(137,226	)
	$	51,975		$	207,550		$	(204,200	)	$	55,325		$	(15,890	)	$	39,435

See accompanying notes to the pro forma combined financial statements.

126

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED STATEMENT OF OPERATIONS ASSUMING THE UNAFFILIATED SALES (UNAUDITED)

For the Nine Months Ended September 30, 2006

The following unaudited pro forma combined statement of operations is presented as if the following transactions had been consummated on January 1, 2005: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the estimated distribution of excess refinancing proceeds to partners and (iii) the completion of the Unaffiliated Sales. This unaudited pro forma combined statement of operations should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus), the unaudited financial statements of VMS for the nine months ended September 30, 2006 (included in VMS’s report on Form 10-Q for the quarterly period ended September 30, 2006 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined statement of operations is unaudited and is not necessarily indicative of what the actual results would have been had the aforementioned transactions actually occurred on January 1, 2005, nor does it purport to represent the operations of VMS for future periods.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			After			Unaffiliated
	Historical			Proceeds			Indebtedness			Refinancing			Sales
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands, except per limited partnership interest data)
Revenues:
Rental income	$	23,948								$	23,948		$	(7,314	)(1)	$	16,634
Other income		2,210									2,210			(954	)(1)		1,256
Casualty gains		538									538			(528	)(1)		10
Total revenues		26,696			—			—			26,696			(8,796	)		17,900
Expenses:
Operating		10,067									10,067			(4,115	)(1)		5,952
Property management fees to an affiliate		1,024									1,024			(322	)(1)		702
General and administrative		468									468			(223	)(1)		245
Depreciation		5,889									5,889			(2,142	)(1)		3,747
Interest		23,275		$	10,586	(1)	$	(12,293	)(1)		21,568			(2,910	)(1)		18,658
Property taxes		1,749									1,749			(690	)(1)		1,059
Total expenses		42,472			10,586			(12,293	)		40,765			(10,402	)		30,363
Net (loss) income	$	(15,776	)	$	(10,586	)	$	12,293		$	(14,069	)	$	1,606		$	(12,463	)
Net (loss) income allocated to general partners (2%)	$	(316	)	$	(212	)	$	246		$	(281	)	$	32		$	(249	)
Net (loss) income allocated to limited partners (98%)		(15,460	)		(10,374	)		12,047			(13,788	)		1,574			(12,214	)
	$	(15,776	)	$	(10,586	)	$	12,293		$	(14,069	)	$	1,606		$	(12,463	)
Net (loss) income per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(16,970	)	$	(11,388	)	$	13,224		$	(15,134	)	$	1,728		$	(13,407	)
Portfolio II (267 interests issued and outstanding)	$	(16,970	)	$	(11,388	)	$	13,225		$	(15,135	)	$	1,728		$	(13,408	)

See accompanying notes to the pro forma combined financial statements.

127

VMS NATIONAL PROPERTIES JOINT VENTURE

PRO FORMA COMBINED STATEMENT OF OPERATIONS ASSUMING THE UNAFFILIATED SALES (UNAUDITED)

For the Year Ended December 31, 2005

The following unaudited pro forma combined statement of operations is presented as if the following transactions had been consummated on January 1, 2005: (i) the refinancing of the mortgage indebtedness of the Properties, (ii) the repayment of the existing senior and junior mortgage indebtedness of the Properties and the estimated distribution of excess refinancing proceeds to partners and (iii) the completion of the Unaffiliated Sales. This unaudited pro forma combined statement of operations should be read in conjunction with the historical financial statements of VMS for the year ended December 31, 2005 (included in VMS’s report on Form 10-K for the fiscal year ended December 31, 2005 and elsewhere in this proxy statement-prospectus) and the accompanying notes to the pro forma combined financial statements.

The pro forma combined statement of operations is unaudited and is not necessarily indicative of what the actual results would have been had the aforementioned transactions actually occurred on January 1, 2005, nor does it purport to represent the operations of VMS for future periods.

				Pro Forma Adjustments
							Repay			Pro Forma
				Refinancing			Existing			after			Unaffiliated
	Historical			Proceeds			Indebtedness			Refinancing			Sales
	(a)			(b)			(c)			(d)			(e)			Pro Forma
	(In thousands, except per limited partnership interest data)
Revenues:
Rental income	$	30,207								$	30,207		$	(9,775	)(1)	$	20,432
Other income		2,282									2,282			(868	)(1)		1,414
Casualty gains		564									564			(289	)(1)		275
Total revenues		33,053			—			—			33,053			(10,932	)		22,121
Expenses:
Operating		12,655									12,655			(4,989	)(1)		7,666
Property management fees to an affiliate		1,278									1,278			(419	)(1)		859
General and administrative		686									686			(327	)(1)		359
Depreciation		7,614									7,614			(2,768	)(1)		4,846
Interest		18,088		$	14,006	(1)	$	(10,560	)(1)		21,534			(7,860	)(1)		13,674
Property taxes		2,187									2,187			(802	)(1)		1,385
Total expenses		42,508			14,006			(10,560	)		45,954			(17,165	)		28,789
Net (loss) income	$	(9,455	)	$	(14,006	)	$	10,560		$	(12,901	)	$	6,233		$	(6,668	)
Net (loss) income allocated to general partners (2%)	$	(189	)	$	(280	)	$	211		$	(258	)	$	125		$	(133	)
Net (loss) income allocated to limited partners (98%)		(9,266	)		(13,726	)		10,349			(12,643	)		6,108			(6,535	)
	$	(9,455	)	$	(14,006	)	$	10,560		$	(12,901	)	$	6,233		$	(6,668	)
Net (loss) income per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(10,171	)	$	(15,066	)	$	11,360		$	(13,878	)	$	6,705		$	(7,173	)
Portfolio II (267 interests issued and outstanding)	$	(10,172	)	$	(15,067	)	$	11,360		$	(13,878	)	$	6,705		$	(7,170	)

See accompanying notes to the pro forma combined financial statements.

128

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO PRO FORMA FINANCIAL STATEMENTS ASSUMING THE UNAFFILIATED SALES
(Unaudited)
(In thousands)

Pro Forma Combined Balance Sheet as of September 30, 2006

(a) Reflects the historical combined balance sheet of VMS as of September 30, 2006.

(b) Reflects the refinancing of the mortgage indebtedness of the Properties on September 30, 2006 based on estimated mortgage terms, which are based on correspondence and discussions with the potential lender.

(1)   Reflects the estimated net cash proceeds from the new mortgage loans.

(2)   Reflects the estimated direct costs incurred in connection with the new mortgage loans.

(3)   Reflects the aggregate mortgage principal balance of the new mortgage indebtedness, consisting of $168,000 for the Affiliated Contribution Properties and $39,550 for the Unaffiliated Sale Properties.

(c) Reflects use of refinancing proceeds for the repayment of the existing senior and junior mortgage indebtedness of the Properties on September 30, 2006.

(1)   Reflects the estimated cash used to pay existing mortgage principal and accrued interest, advances from affiliates, the mortgage participation liability attributable to the refinancing, notes payable, and distribution to the partners. Netted in the amount is cash received from the close-out of existing mortgage escrow accounts (see notes below for further information).

(2)   Reflects the close-out of existing mortgage escrow accounts in connection with the repayment of existing mortgage indebtedness.

(3)   Reflects the payoff of existing mortgage indebtedness principal and accrued interest.

(4)   Reflects the repayment of advances from an affiliate of the Managing General Partner, including accrued interest, and payment of bankruptcy claims to affiliates of the Managing General Partner.

(5)   Reflects the payment of the mortgage participation liability to the extent required based on the amount available of refinancing proceeds in excess of senior mortgage indebtedness payments. The mortgage participation liability within these pro forma financial statements is referenced as “residual to MF VMS interest” elsewhere in the proxy statement-prospectus, such as in “Special Factors — Estimated Distributions and Tax Consequences”.

(6)   Reflects the recognition of deferred gain in connection with the payoff of the existing mortgage indebtedness to which the deferred gain relates (see “Special Factors — Background and Reasons for the Transactions”).

(7)   Reflects the recognition of the $42,225 deferred gain (as discussed in note (c)(6) above) and the recognition of a $61 overaccrual of bankruptcy claims, partially offset by the estimated distribution of remaining refinancing proceeds of $12,070 to the partners.

(d) Reflects the pro forma combined balance sheet of VMS as of September 30, 2006, after the refinancing of the indebtedness of the Properties on September 30, 2006.

(e) Reflects the Unaffiliated Sales on September 30, 2006.

(1)   The Unaffiliated Sales have no net effect on cash balances. Cash received in connection with the Unaffiliated Sales is used to repay the related balance of the mortgage participation liability and to fund partner distributions.

(2)   Reflects the balances of assets and liabilities transferred or liquidated in connection with the Unaffiliated Sales Properties, net of adjustments related to the refinancing.

129

(3)   Reflects the balance of other assets totaling $369 transferred or liquidated in connection with the Unaffiliated Sales and the write-off of $809 in estimated direct costs incurred in connection with the refinancing of the Unaffiliated Sale Properties.

(4)   Reflects the principal amount of refinanced indebtedness related to the Unaffiliated Sale Properties that is repaid in connection with the Unaffiliated Sales.

(5)   Reflects adjustment to reduce the mortgage participation liability representing the amount paid to fully satisfy the liability related to the Unaffiliated Sales.

(6)   Reflects the estimated $54,518 non-recurring gain on the Unaffiliated Sales, partially offset by the estimated $13,871 distribution of net proceeds to the partners and the recognition of expenses totaling $995 consisting primarily of an $809 write-off of refinancing costs (see note (e)(3) above).

Pro Forma Combined Statement of Operations — For the Nine Months Ended September 30, 2006

(a) Reflects the historical combined statement of operations of VMS for the nine months ended September 30, 2006.

(b) Reflects the refinancing of the mortgage indebtedness related to the Properties on January 1, 2005 based on estimated mortgage terms, which are based on correspondence and discussions with the potential lender. For the Unaffiliated Sale Properties, such terms reflect an initial principal balance of $39,550, a variable interest rate equal to the Fannie Mae Discount Mortgage Backed Security rate plus 105 basis points (assumed to be 6.27%, the applicable rate at September 30, 2006) and monthly principal and interest payments based on a 30-year amortization period. Direct financing costs related to the refinancing are estimated at $809. For the Affiliated Contribution Properties, such terms reflect an initial principal balance of $168,000, a fixed interest rate of 6.16% and monthly interest only payments. Direct financing costs related to the refinancing are estimated at $3,780.

(1)   Reflects the interest on new mortgage indebtedness related to the Properties, including amortization of related direct financing costs.

(c) Reflects the repayment of the senior and junior mortgage indebtedness of the Properties on January 1, 2005.

(1)   Reflects the reversal of interest expense related to the existing mortgage indebtedness, advances from an affiliate of the Managing General Partner and mortgage participation liability accretion adjustments due to payoff of related balances in connection with the refinancing on January 1, 2005.

(d) Reflects the pro forma combined statement of operations of VMS for the nine months ended September 30, 2006, after giving effect to the refinancing of the indebtedness of the Properties on January 1, 2005. The pro forma amounts do not reflect a nonrecurring debt extinguishment of $42,225 that would be recognized upon the payoff of the Properties’ existing indebtedness (see note (c)(6) to the pro forma combined balance sheet as of September 30, 2006).

(e) Reflects the Unaffiliated Sales on January 1, 2005. A nonrecurring loss of $809, representing estimated direct costs incurred in connection with the refinancing, would be recognized upon the Unaffiliated Sales.

(1)   Reflects the reversal of the actual results of operations related to the Unaffiliated Sale Properties for the nine months ended September 30, 2006, net of adjustments related to refinancing and mortgage participation liability accretion.

Pro Forma Combined Statement of Operations — For the Year Ended December 31, 2005

(a) Reflects the historical combined statement of operations of VMS for the year ended December 31, 2005.

(b) Reflects the refinancing of the mortgage indebtedness related to the Properties on January 1, 2005 based on estimated mortgage terms, which are based on correspondence and discussions with the potential lender. For the Unaffiliated Sale Properties, such terms reflect an initial principal balance of $39,550, a variable interest rate equal to the Fannie Mae Discount Mortgage Backed Security rate plus 105 basis points (assumed to be

130

6.27%, the applicable rate at September 30, 2006) and monthly principal and interest payments based on a 30-year amortization period. Direct financing costs related to the refinancing are estimated at $809. For the Affiliated Contribution Properties, such terms reflect an initial principal balance of $168,000, a fixed interest rate of 6.16% and monthly interest only payments. Direct financing costs related to the refinancing are estimated at $3,780.

        (1) Reflects the interest on new mortgage indebtedness related to the Properties, including amortization of related direct financing costs.

(c) Reflects the repayment of the senior and junior mortgage indebtedness of the Properties on January 1, 2005.

(1)   Reflects the reversal of interest expense related to the existing mortgage indebtedness, advances from an affiliate of the Managing General Partner and mortgage participation liability accretion adjustments due to payoff of related balances in connection with the refinancing on January 1, 2005.

(d) Reflects the pro forma combined statement of operations of VMS for the year ended December 31, 2005, after giving effect to the refinancing of the indebtedness of the Properties on January 1, 2005. The pro forma amounts do not reflect a nonrecurring debt extinguishment of $42,225 that would be recognized upon the payoff of the Properties’ existing indebtedness (see note (c)(6) to the pro forma combined balance sheet as of September 30, 2006).

(e) Reflects the Unaffiliated Sales on January 1, 2005. A nonrecurring loss of $809, representing estimated direct costs incurred in connection with the refinancing, would be recognized upon the Unaffiliated Sales.

(1)   Reflects the reversal of the actual results of operations related to the Unaffiliated Sale Properties for the year ended December 31, 2005, net of adjustments related to refinancing and mortgage participation liability accretion.

131

ANNEX A

OFFICERS AND DIRECTORS

VMS, the Partnerships, Aimco Properties, LLC and the Aimco Operating Partnership do not have directors, officers or significant employees of their own. The names and positions of the executive officers and directors of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL, Inc., the managing general partner of the Partnerships (“MAERIL”), are set forth below. The business address of each executive officer and director is 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237. Each executive officer and director is a citizen of the United States of America.

Name (age)	Position
Terry Considine (59)	Chairman of the Board of Directors, Chief Executive Officer and President of Aimco; Director, Chief Executive Officer and President of AIMCO-GP and AIMCO/IPT
Jeffrey Adler (43)	Executive Vice President — Conventional Property Operations of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Harry G. Alcock (43)	Executive Vice President and Chief Investment Officer of Aimco and AIMCO-GP; Director, Executive Vice President and Chief Investment Officer of AIMCO/IPT and MAERIL
Timothy Beaudin (47)	Executive Vice President and Chief Development Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Miles Cortez (62)	Executive Vice President, General Counsel and Secretary of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Patti K. Fielding (42)	Executive Vice President — Securities and Debt of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Scott W. Fordham (38)	Senior Vice President and Chief Accounting Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL.
Lance J. Graber (44)	Executive Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Thomas M. Herzog (44)	Executive Vice President and Chief Financial Officer of Aimco, AIMCO/IPT and MAERIL; Director, Executive Vice President and Chief Financial Officer of AIMCO-GP; Executive Vice President and Chief Financial Officer of MAERIL
Martha L. Long (47)	Senior Vice President of Aimco, AIMCO-GP and AIMCO/IPT; Director and Senior Vice President of MAERIL
James G. Purvis (53)	Executive Vice President — Human Resources of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
David Robertson (40)	Executive Vice President of Aimco, AIMCO-GP and AIMCO/IPT; President of the MAERIL
Robert Y. Walker, IV (40)	Executive Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
Stephen B. Waters (44)	Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL
James N. Bailey (59)	Director of Aimco
Richard S. Ellwood (74)	Director of Aimco
J. Landis Martin (60)	Director of Aimco
Thomas L. Rhodes (66)	Director of Aimco
Michael A. Stein (56)	Director of Aimco

A-1

Name	Principal Occupations for the Last Five Years
Terry Considine	Mr. Considine has been Chairman and Chief Executive Officer of Aimco and AIMCO-GP since July 1994 and has been a director, Chief Executive Officer and President of AIMCO/IPT since February 1999. Mr. Considine serves as Chairman of the Board of Directors of American Land Lease, Inc., another public real estate investment trust. Mr. Considine devotes substantially all of his time to his responsibilities at Aimco.
Jeffrey Adler	Mr. Adler has been an Executive Vice President of Aimco, AIMCO/IPT and MAERIL since February 2004. Previously he served as Senior Vice President Risk Management of Aimco, AIMCO-GP, AIMCO/APT and MAERIL from January 2002 until November 2002, when he added the responsibility of Senior Vice President, Marketing. From 2000 to 2002, Mr. Adler was Vice President, Property/Casualty for Channelpoint, a software company.
Harry G. Alcock	Mr. Alcock was appointed Executive Vice President and Chief Investment Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in October 1999. Mr. Alcock has been a Director of MAERIL since October 2004. Mr. Alcock has had responsibility for acquisition and financing activities of Aimco since 1994, serving as a Vice President from July 1996 to October 1997 and as a Senior Vice President from October 1997 to October 1999.
Timothy Beaudin	Mr. Beaudin was appointed Executive Vice President and Chief Development Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in October 2005. Prior to this time, beginning in 1995, Mr. Beaudin was with Catellus Development Corporation, a San Francisco, California-based real estate investment trust. During his last five years at Catellus, Mr. Beaudin served as executive vice president, with management responsibility for development, construction and asset management.
Miles Cortez	Mr. Cortez was appointed Executive Vice President, General Counsel and Secretary of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in August 2001. Prior to this time, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. He served as president of the Colorado Bar Association from 1996 to 1997 and the Denver Bar Association from 1982 to 1983.
Patti K. Fielding	Ms. Fielding was appointed Executive Vice President — Securities and Debt of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in February 2003 and Treasurer in January 2005. From January 2000 to February 2003, Ms. Fielding served as Senior Vice President — Securities and Debt. Ms. Fielding joined Aimco as a Vice President in February 1997.
Scott W. Fordham	Mr. Fordham was appointed Senior Vice President and Chief Accounting Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in January 2007. Prior to joining Aimco, Mr. Fordham served as Vice President and Chief Accounting Officer of Brandywine Realty Trust. Prior to the merger of Prentiss Properties Trust with Brandywine Realty Trust, Mr. Fordham served as Senior Vice President and Chief Accounting Officer of Prentiss Properties Trust and was in charge of the corporate accounting and financial reporting groups. Prior to joining Prentiss Properties Trust in 1992, Mr. Fordham worked in public accounting with PricewaterhouseCoopers LLP.
Lance J. Graber	Mr. Graber was appointed Executive Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in October 1999. Prior to this time, Mr. Graber was a Director at Credit Suisse First Boston from 1994 to May 1999.

A-2

Name	Principal Occupations for the Last Five Years
Thomas M. Herzog	Mr. Herzog was appointed Executive Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in July 2005 and Chief Financial Officer in November 2005. Mr. Herzog was appointed a Director of AIMCO-GP in July 2005. In January 2004, Mr. Herzog joined Aimco as Senior Vice President and Chief Accounting Officer. Prior to this time, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000.
Martha L. Long	Ms. Long has been with Aimco since October 1998 and served in various capacities. From 1998 to 2001, she served as Senior Vice President and Controller. During 2002 and 2003, she served as Senior Vice president of Continuous Improvement. Ms. Long has been a Director and Senior Vice President of MAERIL since May 2004.
James G. Purvis	Mr. Purvis was appointed Executive Vice President — Human Resources of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in February 2003. From October 2000 to February 2003, Mr. Purvis served as the Vice President of Human Resources at SomaLogic, Inc. a privately held biotechnology company in Boulder, Colorado. From July 1997 to October 2000, Mr. Purvis was the principal consultant for O(3)C Global Organization Solutions, a global human resources strategy and technology consulting company based in Colorado and London.
David Robertson	Mr. Robertson has been Executive Vice President of Aimco, AIMCO-GP and AIMCO/IPT since February 2002, President and Chief Executive Officer of AIMCO Capital since October 2002 and President of MAERIL since May 2004. From 1991 to 1996, Mr. Robertson was a member of the investment-banking group at Smith Barney. Since February 1996, Mr. Robertson has been Chairman of Robeks Corporation, a privately held chain of specialty food stores.
Robert Y. Walker, IV	Mr. Walker was appointed Executive Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL in July 2006. Prior to such appointment, he served as Senior Vice President of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL since August 2005. Mr. Walker served as the Chief Accounting Officer of Aimco, AIMCO-GP, AIMCO/IPT and MAERIL from November 2005 to January 2007. From June 2002 until he joined Aimco, Mr. Walker served as senior vice president and chief financial officer at Miller Global Properties, LLC, a Denver-based private equity, real estate fund manager. From May 1997 to June 2002, Mr. Walker was employed by GE Capital Real Estate, serving as Global Controller from May 2000 to June 2002.
Stephen B. Waters	Mr. Waters was appointed Vice President of Aimco, AIMCO-GP, AIMCO-IPT and MAERIL in April 2004. Mr. Waters serves as principal financial officer of MAERIL. Mr. Waters previously served as a Director of Real Estate Accounting since joining Aimco in September 1999.

A-3

Name	Principal Occupations for the Last Five Years
James N. Bailey	Mr. Bailey was first elected as a Director of Aimco in June 2000 and is currently Chairman of the Nominating and Corporate Governance Committee and a member of the Audit and Compensation and Human Resources Committees. Mr. Bailey co-founded Cambridge Associates, LLC, an investment consulting firm, in 1973 and currently serves as its Senior Managing Director and Treasurer. He is also a director of The Plymouth Rock Company, SRB Corporation, Inc., Direct Response Corporation and Homeowners Direct Company, all four of which are insurance companies. In addition, he is a director of Getty Images, Inc., a publicly held company. He has also been a member of a number of Harvard University alumni affairs committees, including, the Overseers Nominating Committee and The Harvard Endowment Committee. Mr. Bailey is a member of the Massachusetts Bar and the American Bar Associations.
Richard S. Ellwood	Mr. Ellwood was first elected as a Director of Aimco in July 1994. Mr. Ellwood is currently a member of the Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Ellwood was the founder and President of R.S. Ellwood & Co., Incorporated, which he operated as a real estate investment banking firm until December 31, 2004. Prior to forming his firm, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of Felcor Lodging Trust, Incorporated, a publicly held company. He also serves as a trustee of the Diocesan Investment Trust of the Episcopal Diocese of New Jersey and as a member of the diocesan audit committee.
J. Landis Martin	Mr. Martin was first elected as a Director of Aimco in July 1994 and is currently Chairman of the Compensation and Human Resources Committee. Mr. Martin is a member of the Audit and Nominating and Corporate Governance Committees. Mr. Martin is also the Lead Independent Director of Aimco’s Board. Mr. Martin is the Founder and Managing Director of Platte River Ventures LLC, a private equity firm. In November 2005, Mr. Martin retired as Chairman and CEO of Titanium Metals Corporation, a publicly held integrated producer of titanium metals, where he served since January 1994. Mr. Martin served as President and CEO of NL Industries, Inc., a publicly held manufacturer of titanium dioxide chemicals, from 1987 to 2003. Mr. Martin is also a director of Halliburton Company, a publicly held provider of products and services to the energy industry and Crown Castle International Corporation, a publicly held wireless communications company.
Thomas L. Rhodes	Mr. Rhodes was first elected as a Director of Aimco in July 1994 and is currently a member of the Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Rhodes is Chairman of National Review magazine where he served as President since November 1992 and as a Director since 1988. From 1976 to 1992, he held various positions at Goldman, Sachs & Co., was elected a General Partner in 1986 and served as a General Partner from 1987 until November 1992. Mr. Rhodes is Chairman of the Board of Directors of The Lynde and Harry Bradley Foundation and Vice Chairman of American Land Lease, Inc., a publicly held real estate investment trust.

A-4

Name

Principal Occupations for the Last Five Years

Michael A. Stein

Mr. Stein was first elected as a Director of Aimco in October 2004 and is currently the Chairman of the Audit Committee. Mr. Stein is a member of the Compensation and Human Resources and Nominating and Corporate Governance Committees. Mr. Stein is Senior Vice President and Chief Financial Officer of ICOS Corporation, a biotechnology company based in Bothell, Washington. He joined ICOS in January 2001. From October 1998 to September 2000, Mr. Stein was Executive Vice President and Chief Financial Officer of Nordstrom, Inc. From 1989 to September 1998, Mr. Stein served in various capacities with Marriott International, Inc., including Executive Vice President and Chief Financial Officer from 1993 to 1998. Prior to joining Marriott, Mr. Stein spent 18 years at Arthur Andersen LLP, where he was a partner and served as the head of the Commercial Group within the Washington, D.C. office. Mr. Stein serves on the Board of Directors of Getty Images, Inc., a publicly held company, and the Board of Trustees of the Fred Hutchinson Cancer Research Center.

A-5

ANNEX B

INDEX TO FINANCIAL STATEMENTS

	Page
Audited Combined Financial Statements
Report of Independent Registered Public Accounting Firm		B-1
Combined Balance Sheets for the years ended December 31, 2005 and 2004		B-2
Combined Statements of Operations for the years ended December 31, 2005, 2004 and 2003		B-3
Combined Statements of Changes in Partners’ Deficit for the years ended December 31, 2005, 2004, 2003 and 2002		B-4
Combined Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		B-5
Notes to Combined Financial Statements		B-6
Unaudited Combined Financial Statements
Combined Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005		B-20
Combined Statements of Operations for the nine-months ended September 30, 2006 (unaudited) and 2005 (unaudited)		B-21
Combined Statements of Changes in Partners’ Deficit for the nine-months ended September 30, 2006 (unaudited) and December 31, 2005		B-22
Combined Statements of Cash Flows for the nine-months ended September 30, 2006 (unaudited) and 2005		B-23
Notes to Combined Financial Statements		B-24

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

The Partners

VMS National Properties Joint Venture

We have audited the accompanying combined balance sheets of VMS National Properties Joint Venture as of December 31, 2005 and 2004, and the related combined statements of operations, changes in partners’ deficit, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Venture’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Venture’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Venture’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 combined financial position of VMS National Properties Joint Venture at December 31, 2005 and 2004, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/  ERNST & YOUNG LLP

Greenville, South Carolina

March 6, 2006

B-1

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED BALANCE SHEETS

	December 31,			December 31,
	2005			2004
	(In thousands)
ASSETS
Cash and cash equivalents	$	2,419		$	2,064
Receivables and deposits		2,343			2,009
Restricted escrows		251			1,115
Other assets		786			737
Investment properties (Notes B and H):
Land		13,404			13,404
Buildings and related personal property		162,434			155,459
		175,838			168,863
Less accumulated depreciation		(126,814	)		(119,509	)
		49,024			49,354
	$	54,823		$	55,279
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	1,665		$	1,328
Tenant security deposit liabilities		893			855
Accrued property taxes		670			695
Other liabilities		800			827
Accrued interest		878			560
Due to affiliates (Note F)		10,884			7,335
Mortgage notes payable, including $22,674 due to an affiliate at 2005 and $22,123 at 2004 (Note B)		120,561			121,992
Mortgage participation liability (Note D)		25,505			19,265
Notes payable (Note C)		42,060			42,060
Deferred gain on extinguishment of debt (Note A)		42,225			42,225
Partners’ Deficit		(191,318	)		(181,863	)
	$	54,823		$	55,279

See Accompanying Notes to Combined Financial Statements

B-2

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
	2005			2004			2003
	(In thousands, except per limited partnership interest data)
Revenues:
Rental income	$	30,207		$	28,189		$	29,054
Other income		2,282			2,340			2,313
Casualty gains (Note E)		564			45			164
Total revenues		33,053			30,574			31,531
Expenses:
Operating		12,655			11,613			11,094
Property management fees to an affiliate		1,278			1,201			1,253
General and administrative		686			541			594
Depreciation		7,614			7,147			6,984
Interest, including approximately $9,552, $8,512 and $7,903 to an affiliate		18,088			17,094			16,732
Property taxes		2,187			2,180			2,008
Total expenses		42,508			39,776			38,665
Net loss (Note I)	$	(9,455	)	$	(9,202	)	$	(7,134	)
Net loss allocated to general partners (2%)	$	(189	)	$	(184	)	$	(143	)
Net loss allocated to limited partners (98%)		(9,266	)		(9,018	)		(6,991	)
	$	(9,455	)	$	(9,202	)	$	(7,134	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(10,171	)	$	(9,899	)	$	(7,674	)
Portfolio II (267 interests issued and outstanding)	$	(10,172	)	$	(9,898	)	$	(7,674	)

See Accompanying Notes to Combined Financial Statements

B-3

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF CHANGES IN PARTNERS’ DEFICIT

	VMS National Residential Portfolio I
	Limited Partners
	General			Accumulated			Subscription
	Partner			Deficit			Notes			Sub-Total			Total
	(In thousands)
Partners’ deficit at December 31, 2002	$	(3,641	)	$	(112,369	)	$	(502	)	$	(112,871	)	$	(116,512	)
Net loss for the year ended December 31, 2003		(101	)		(4,942	)		—			(4,942	)		(5,043	)
Partner’s deficit at December 31, 2003		(3,742	)		(117,311	)		(502	)		(117,813	)		(121,555	)
Net loss for the year ended December 31, 2004		(130	)		(6,375	)		—			(6,375	)		(6,505	)
Partners’ deficit at December 31, 2004		(3,872	)		(123,686	)		(502	)		(124,188	)		(128,060	)
Net loss for the year ended December 31, 2005		(134	)		(6,550	)		—			(6,550	)		(6,684	)
Partners’ deficit at December 31, 2005	$	(4,006	)	$	(130,236	)	$	(502	)	$	(130,738	)	$	(134,744	)

	VMS National Residential Portfolio II
	Limited Partners
	General			Accumulated			Subscription
	Partner			Deficit			Notes			Sub-Total			Total
	(In thousands)
Partners’ deficit at December 31, 2002	$	(1,524	)	$	(47,163	)	$	(328	)	$	(47,491	)	$	(49,015	)
Net loss for the year ended December 31, 2003		(42	)		(2,049	)		—			(2,049	)		(2,091	)
Partner’s deficit at December 31, 2003		(1,566	)		(49,212	)		(328	)		(49,540	)		(51,106	)
Net loss for the year ended December 31, 2004		(54	)		(2,643	)		—			(2,643	)		(2,697	)
Partners’ deficit at December 31, 2004		(1,620	)		(51,855	)		(328	)		(52,183	)		(53,803	)
Net loss for the year ended December 31, 2005		(55	)		(2,716	)		—			(2,716	)		(2,771	)
Partners’ deficit at December 31, 2005	$	(1,675	)	$	(54,571	)	$	(328	)	$	(54,899	)	$	(56,574	)
Combined partners’ deficit at December 31, 2005	$	(5,681	)	$	(184,807	)	$	(830	)	$	(185,637	)	$	(191,318	)

See Accompanying Notes to Combined Financial Statements

B-4

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2005			2004			2003
	(In thousands)
Cash flows from operating activities:
Net loss	$	(9,455	)	$	(9,202	)	$	(7,134	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		7,614			7,147			6,984
Amortization of mortgage discounts		6,240			5,533			5,079
Casualty gains		(564	)		(45	)		(164	)
Change in accounts:
Receivables and deposits		(334	)		(321	)		45
Other assets		(49	)		(152	)		(207	)
Accounts payable		551			(353	)		509
Tenant security deposit liabilities		38			6			(44	)
Due to affiliates		259			403			291
Accrued property taxes		(25	)		95			(3	)
Accrued interest		2,009			1,886			1,032
Other liabilities		(27	)		6			(1	)
Net cash provided by operating activities		6,257			5,003			6,387
Cash flows from investing activities:
Property improvements and replacements		(7,558	)		(2,923	)		(2,786	)
Net withdrawals from (deposits to) restricted escrows		864			(219	)		(47	)
Insurance proceeds received		624			74			196
Net cash used in investing activities		(6,070	)		(3,068	)		(2,637	)
Cash flows from financing activities:
Payments on mortgage notes payable		(3,122	)		(4,374	)		(4,795	)
Payments on advances from an affiliate		(2,841	)		—			(3	)
Advances from an affiliate		6,131			2,742			—
Net cash provided by (used in) financing activities		168			(1,632	)		(4,798	)
Net increase (decrease) in cash and cash equivalents		355			303			(1,048	)
Cash and cash equivalents at beginning of year		2,064			1,761			2,809
Cash and cash equivalents at end of year	$	2,419		$	2,064		$	1,761
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $1,537, $465, and $1,600 paid to an affiliate	$	9,868		$	9,262		$	10,346
Supplemental disclosure of non-cash information:
Accrued interest added to mortgage notes payable	$	1,691		$	2,124		$	937
Property improvements and replacements included in accounts payable and other liabilities	$	643		$	857		$	330

See Accompanying Notes to Combined Financial Statements

B-5

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2005

Note A —  Organization and Summary of Significant Accounting Policies

Organization:

VMS National Properties Joint Venture (the “Venture”) was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement (the “Venture Agreement”) dated September 27, 1984, between VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”) (collectively, the “Ventures”). Effective December 12, 1997, the managing general partner of each of the Ventures was transferred from VMS Realty Investment, Ltd. (“VMSRIL”) (formerly VMS Realty Partners) to MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), a wholly-owned subsidiary of MAE GP Corporation (“MAE GP”) and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into Apartment Investment and Management Company (“AIMCO”), a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States.

Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Venture Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture’s operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Venture Agreement.

Basis of Accounting:

The accompanying financial statements represent the combined financial statements of Portfolio I, Portfolio II, and the Venture. Significant interpartnership accounts and transactions have been eliminated from these combined financial statements.

Allocation of Income, Loss, and Distributions:

The operating profits and losses of VMS National Properties Joint Venture are allocated to Portfolio I and Portfolio II based on their respective ownership of VMS National Properties Joint Venture which is 70.69% and 29.31%, respectively. Portfolio I and Portfolio II then combine their respective share of the operating profits and losses of VMS National Properties Joint Venture with their respective operating profits and losses which is then allocated 98% to the respective limited partners and 2% to the respective general partners of both Portfolio I and Portfolio II.

Operating cash flow distributions for Portfolio I and Portfolio II will be made at the discretion of the Managing General Partner subject to the order of distribution indicated in the Venture’s Second Amended and Restated Plan of Reorganization (the “Plan”) as approved by the US Bankruptcy Court in September 1993. Such distributions will be allocated first to the respective Limited Partners in an amount equal to 12% per year (on a noncumulative basis) of their contributed capital; then, to the general partners, a subordinated incentive fee equal to 10.45% of remaining operating cash flow; and finally, of the balance to be distributed, 98% to the Limited Partners and 2% to the general partners.

Distributions of proceeds arising from the sale or refinancing of the Venture’s properties will be allocated to Portfolio I and Portfolio II in proportion to their respective Venture interests subject to the order of distribution indicated in the Plan and approved by the U.S. Bankruptcy Court. Distributions by Portfolio I and Portfolio II will then be allocated as follows: (1) first to the Limited Partners in an amount equal to their aggregate capital

B-6

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

contributions; (2) then to the general partners in an amount equal to their aggregate capital contributions; (3) then, among the Limited Partners, an amount equal to $62,000,000 multiplied by the respective percentage interest of Portfolio I or Portfolio II in the Venture; and (4) finally, of the balance, 76% to the Limited Partners and 24% to the general partners.

In any event, there shall be allocated to the general partners not less than 1% of profits or losses.

Use of Estimates:

The preparation of combined 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.

Fair Value of Financial Instruments:

Statement of Financial Accounting Standards (“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 Venture 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 Venture estimates the fair value of its long term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Venture for similar term, fully amortizing long term debt. The fair value of the Venture’s first mortgages, after discounting the scheduled loan payments to maturity, is approximately $100,810,000. However, the Venture is precluded from refinancing the first mortgages until January 2007. The Managing General Partner believes that it is not appropriate to use the Venture’s incremental borrowing rate for the second mortgages, the Assignment Note and the Long Term Arrangement Fee Note, as there is no market in which the Venture could obtain similar financing. Therefore, the Managing General Partner considers estimation of fair value to be impracticable for this indebtedness.

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. At December 31, 2005 and 2004, cash balances included approximately $2,287,000 and $1,908,000, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.

Tenant Security Deposits:

The Venture requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged the space, and is current on rental payments.

Investment Properties:

Investment properties consists of fifteen apartment complexes and are stated at cost. The Venture capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs associated with redevelopment projects are capitalized in accordance with SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties.” Costs incurred in connection with capital projects are capitalized where the costs of the project exceed $250. Included in these capitalized costs are payroll costs associated with time

B-7

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. The Venture capitalizes interest, property taxes and operating costs in accordance with SFAS No. 34 “Capitalization of Interest Costs” during periods in which redevelopment and construction projects are in progress. The Venture did not capitalize any costs related to interest, property taxes or operating costs during the years ended December 31, 2005 and 2004. Capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Venture records impairment losses on long-lived assets used in operations when events and circumstances indicate 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. No adjustments for impairment of value were necessary for the years ending December 31, 2005 and 2004.

Escrows:

In connection with the December 1997 refinancing of the Venture’s 15 remaining properties, a replacement escrow was required for each property. Each property was required to deposit an initial lump sum amount plus make monthly deposits over the term of the loan, which varies by property. These funds are to be used to cover replacement costs. The balance of the replacement reserves at December 31, 2005 and 2004 is approximately $251,000 and $1,115,000, respectively, including interest.

Depreciation:

Depreciation is computed by the straight-line method over estimated useful lives ranging from 25 to 30 years for buildings and improvements and five to fifteen years for personal property.

Leases:

The Venture generally leases apartment units for twelve-month terms or less. The Venture will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Venture evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Deferred Costs:

Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses.

Advertising Costs:

The Venture expenses the cost of advertising as incurred. Advertising costs of approximately $591,000, $553,000 and $471,000, are included in operating expense for the years ended December 31, 2005, 2004, and 2003, respectively.

Segment Reporting:

SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” established standards for the way 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. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Venture has only one reportable segment.

B-8

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $110,000,000, which was less than the $152,225,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $42,225,000, which is the difference between the note face amounts and the agreed valuation amounts.

Income Taxes:

Taxable income or loss of the Venture is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Venture.

Recent Accounting Pronouncement:

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154 “Accounting Changes and Error Corrections”, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS No. 154 was issued. The Venture does not anticipate that the adoption of SFAS No. 154 will have a material effect on the Venture’s combined financial condition or results of operations.

Note B — Mortgage Notes Payable

	Principal		Principal					Principal
	Balance at		Balance at					Balance
	December 31,		December 31,		Period			Due at
Property	2005		2004		Amortized			Maturity
	(In thousands)							(In thousands)
North Park Apartments
1st mortgage	$	5,642	$	5,750		25 yrs		$	5,376
2nd mortgage		2,718		2,446		(A	)		(A	)
Chapelle Le Grande
1st mortgage		2,896		2,955		25 yrs			2,759
2nd mortgage		1,289		1,205		(A	)		(A	)
Terrace Gardens
1st mortgage		4,006		4,083		25 yrs			3,818
2nd mortgage		1,498		1,421		(A	)		(A	)
Forest Ridge Apartments
1st mortgage		5,324		5,434		25 yrs			5,073
2nd mortgage		490		566		(A	)		(A	)
Scotchollow
1st mortgage		26,291		26,834		25 yrs			25,054
2nd mortgage		9,397		8,861		(A	)		(A	)
Pathfinder Village
1st mortgage		12,147		12,380		25 yrs			11,576
2nd mortgage		3,037		2,816		(A	)		(A	)

B-9

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

	Principal		Principal					Principal
	Balance at		Balance at					Balance
	December 31,		December 31,		Period			Due at
Property	2005		2004		Amortized			Maturity
	(In thousands)							(In thousands)
Buena Vista Apartments
1st mortgage		4,470		4,562		25 yrs			4,260
2nd mortgage(B)		—		62		(A	)		(A	)
Mountain View Apartments
1st mortgage		6,458		6,592		25 yrs			6,154
2nd mortgage(C)		—		—		(A	)		(A	)
Crosswood Park
1st mortgage		5,024		5,120		25 yrs			4,788
2nd mortgage		232		299		(A	)		(A	)
Casa de Monterey
1st mortgage		3,695		3,772		25 yrs			3,479
2nd mortgage		115		268		(A	)		(A	)
The Bluffs
1st mortgage		3,360		3,429		25 yrs			3,202
2nd mortgage		1,442		1,349		(A	)		(A	)
Watergate Apartments
1st mortgage		2,611		2,665		25 yrs			2,492
2nd mortgage		885		840		(A	)		(A	)
Shadowood Apartments
1st mortgage		2,032		2,074		25 yrs			1,936
2nd mortgage		41		88		(A	)		(A	)
Vista Village Apartments
1st mortgage		2,997		3,059		25 yrs			2,856
2nd mortgage		1,337		1,215		(A	)		(A	)
Towers of Westchester Park
1st mortgage		10,934		11,160		25 yrs			10,420
2nd mortgage		193		687		(A	)		(A	)
Totals	$	120,561	$	121,992				$	93,243

(A)	Payments are based on excess monthly cash flow with any unpaid balance due at maturity. Excess monthly cash flow is defined as revenue generated from the operation of a property less: (1) operating expenses of the property; (2) the debt service payment for the senior loan; (3) the tax and insurance reserve deposit; and (4) the replacement reserve deposit.
(B)	Second mortgage loan was satisfied in 2005.
(C)	Second mortgage loan was satisfied in 2004.

Interest rates are 8.50% and 10.84% for the fixed rate first and second mortgages, respectively. All notes mature January 1, 2008.

B-10

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The senior debt prohibits repayment prior to January 1, 2007. All of the loans are cross-collateralized, but they are not cross-defaulted; therefore, a default by one property under the terms of its debt agreement does not in and of itself create a default under all of the senior and junior debt agreements. However, if the proceeds upon the sale or refinancing of any property are insufficient to fully repay the outstanding senior or junior debt related to that property, any deficiency is to be satisfied from the sale or refinancing of the remaining properties.

Scheduled principal payments on mortgage notes payable subsequent to December 31, 2005 are as follows (in thousands):

2006	$	2,189
2007		2,403
2008		115,969
	$	120,561

As principal payments for the junior loans are based upon monthly cash flow, all principal is assumed to be repaid at maturity.

Note C — Notes Payable

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. The Assignment Note is collateralized by the pledge from Portfolio I and Portfolio II of their respective interests in the Venture.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At December 31, 2005 and 2004 the $38,810,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to AICPA Statement of Position (“SOP”) SOP 90-7, the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

The note in the amount of $3,250,000 does not bear interest and is payable only after debt of a higher priority, including senior and junior mortgage loans have been repaid.

Note D — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and a third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such

B-11

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”) which collectively total approximately $42,139,000 from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $32,531,000 and $32,009,000 for the years ended December 31, 2005 and 2004, respectively. The Managing General Partner reevaluated the fair value of the participation feature during the three months ended June 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $522,000 and reduced by approximately $4,509,000, respectively. At December 31, 2005 there was no change in estimated fair value of the participation feature. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the three months ended June 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the years ended December 31, 2005, 2004 and 2003, the Venture amortized approximately $6,240,000, $5,533,000 and $5,079,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at December 31, 2005 and 2004 was approximately $7,026,000 and $12,744,000, respectively.

Note E — Casualty Gains

During the twelve months ended December 31, 2005, a net casualty gain of approximately $60,000 was recorded at Chapelle Le Grande Apartments. The casualty gain related to a plumbing pipe break, occurring on June 27, 2005, which caused damage to two units at the property. The gain was the result of the receipt of insurance proceeds of approximately $66,000 offset by approximately $6,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2005, an estimated net casualty loss of approximately $3,000 was recorded at Scotchollow Apartments. The casualty loss related to an earthquake occurring on November 29, 2005, which caused damage to two units at the property. The loss was the result of approximately $3,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2005, a net casualty gain of approximately $278,000 was recorded at Casa De Monterey Apartments. The casualty gain related to a fire occurring in February 2005 caused by a contractor working at the property that severely damaged six units of an eight unit apartment building. The gain was the result of the receipt of insurance proceeds of approximately $308,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off.

B-12

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

During the twelve months ended December 31, 2005, an estimated net casualty gain of approximately $229,000 was recorded at Watergate Apartments. The casualty gain related to a fire caused by a tenant burning candles, occurring on May 27, 2005, which caused damage to eight units at the property. The gain was the result of the receipt of insurance proceeds of approximately $250,000 offset by approximately $21,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2004, a net casualty gain of approximately $45,000 was recorded at Terrace Gardens Apartments. The casualty gain related to a winter ice storm, occurring in February 2004, which caused damage to 32 units at the property. The gain was the result of the receipt of insurance proceeds of approximately $74,000 offset by approximately $8,000 of undepreciated property improvements and replacements being written off and approximately $21,000 of emergency repairs made at the property.

During the twelve months ended December 31, 2003, the Venture recorded a net casualty gain of approximately $164,000. The casualty gain resulted from fires at both Shadowood and Pathfinder Village Apartments.

In September 2002 a fire at Shadowood Apartments caused damage to eight units at the property. A net casualty gain of approximately $65,000 was recorded in relation to this fire. The gain was the result of the receipt of insurance proceeds of approximately $78,000 offset by approximately $13,000 of undepreciated property improvements and replacements being written off.

In February 2003, a fire at Pathfinder Village Apartments caused damage to five units at the property. A net casualty gain of approximately $99,000 was recorded in relation to this fire. The gain was a result of the receipt of insurance proceeds of approximately $118,000 offset by approximately $19,000 of undepreciated property improvements and replacements being written off.

Note F — Transactions With Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000 adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum.

Asset management fees of approximately $351,000, $323,000 and $325,000 were charged by affiliates of the Managing General Partner for the years ended December 31, 2005, 2004 and 2003, respectively. These fees are included in general and administrative expenses. At December 31, 2005, approximately $295,000 of such fees were owed and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid to such affiliates approximately $1,278,000, $1,201,000 and $1,253,000 for the years ended December 31, 2005, 2004 and 2003, respectively, which are included in property management fee expense. At December 31, 2005, approximately $11,000 of such fees were owned and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $100,000 for each of the years ended December 31, 2005, 2004 and 2003. These expenses are included in general and administrative expense.

During the years ended December 31, 2005, 2004 and 2003, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $174,000, $168,000 and $130,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties. During the third quarter of 2005, it was determined by the Managing General Partner that approximately $398,000 of such fees

B-13

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

previously charged in 2005 and approximately $133,000 of such fees previously charged in 2004 should not have been charged and the total was refunded to the Venture during the first quarter of 2006. At December 31, 2005, the amount to be refunded of approximately $292,000 was included in receivables and deposits.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $123,000 for each of the years ended December 31, 2005, 2004, and 2003. These expenses are included in operating expense.

At December 31, 2005 and December 31, 2004, the Venture owed loans of approximately $9,639,000 and $6,348,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $939,000 and $987,000, respectively, which are included in due to affiliates on the combined balance sheets. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (10.25% at December 31, 2005). The Venture recognized interest expense of approximately $848,000, $407,000 and $287,000 during the years ended December 31, 2005, 2004 and 2003, respectively. During the year ended December 31, 2005, the Venture paid approximately $2,841,000 of principal and approximately $895,000 of accrued interest on loans owed to an affiliate of the Managing General Partner. No amounts were paid during the year ended December 31, 2004. Subsequent to December 31, 2005, an affiliate of the Managing General Partner loaned five of the properties approximately $1,104,000 to cover outstanding capital improvement payables and two properties approximately $311,000 to cover operating expenses.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At December 31, 2005 and 2004, the outstanding balance of approximately $79,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the distributions required by the bankruptcy plan. There were no property dispositions for which proceeds were received during the years ended December 31, 2005, 2004, and 2003.

The junior debt of approximately $22,674,000 and $22,123,000 at December 31, 2005 and 2004, respectively, is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the years ended December 31, 2005, 2004 and 2003, the Venture recognized interest expense of approximately $2,454,000, $2,444,000, and $2,534,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2005, 2004 and 2003, the Venture was charged by AIMCO and its affiliates approximately $457,000, $423,000 and $474,000, respectively, for insurance coverage and fees associated with policy claims administration.

As a result of tender offers, AIMCO and its affiliates owned 119 units of limited partnership interest in Portfolio I representing 18.48% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 20.48% at December 31, 2005. AIMCO and its affiliates owned 67.42 units of limited partnership interest in Portfolio II representing 25.25% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 27.25% at December 31, 2005. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 22.47% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of limited partnership interest in the Venture in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Under the Venture Agreements, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without

B-14

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

limitation, voting on certain amendments to the Venture Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Venture, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Venture and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Note G — Subscription Notes And Accrued Interest Receivable

Portfolio I and Portfolio II executed promissory notes requiring cash contributions from the partners aggregating $136,800,000 to the capital of Portfolios I and II for 644 and 267 units, respectively. Of this amount, approximately $135,060,000 was contributed in cash through December 31, 2005, and $910,000 was deemed uncollectible and written-off prior to December 31, 2005. The following table represents the remaining Limited Partners’ subscription notes principal balances and the related accrued interest receivable at December 31, 2005 (in thousands):

	Portfolio I			Portfolio II
Subscription notes receivable	$	502		$	328
Accrued interest receivable		63			67
Allowance for uncollectible interest receivable		(63	)		(67	)
Total subscription notes and accrued interest receivable	$	502		$	328

All amounts outstanding at December 31, 2005, are considered past due and bear interest at the default rate of 18%. No interest will be recognized until collection is assured. The balances have been appropriately included as an increase in Partners’ Deficit.

Note H — Investment Properties and Accumulated Depreciation

	(In thousands)
					Buildings and		Costs Capitalized		Provision to
					Related Personal		Subsequent to		Reduce to
Description	Encumbrances		Land		Property		Acquisition		Fair Value
	(In thousands)						(In thousands)
North Park Apartments	$	8,360	$	557	$	8,349	$	3,257	$	—
Chapelle Le Grande		4,185		166		3,873		1,371		—
Terrace Garden		5,504		433		4,517		2,440		—
Forest Ridge Apartments		5,814		701		6,930		2,807		—
Scotchollow		35,688		3,510		19,344		10,107		—
Pathfinder Village		15,184		3,040		11,698		6,695		(1,250	)
Buena Vista Apartments		4,470		893		4,538		1,332		—
Mountain View Apartments		6,458		1,289		8,490		2,746		—
Crosswood Park		5,256		611		8,597		4,853		(2,000	)
Casa De Monterey		3,810		869		6,136		2,685		—
The Bluffs		4,802		193		3,667		1,126		—
Watergate Apartments		3,496		263		5,625		2,353		—
Shadowood Apartments		2,073		209		3,393		1,324		—
Vista Village Apartments		4,334		568		5,209		2,232		—
Towers Of Westchester Park		11,127		529		13,491		6,072		—
TOTAL	$	120,561	$	13,831	$	113,857	$	51,400	$	(3,250	)

B-15

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Gross Amount At Which Carried

At December 31, 2005

			Buildings
			and Related
			Personal				Accumulated		Year of		Date of		Depreciable
Description	Land		Property		Total		Depreciation		Construction		Acquisition		Life
	(In thousands)
North Park Apartments	$	557	$	11,606	$	12,163	$	9,139		1968		11/14/84		5-30 yrs
Chapelle Le Grande		166		5,244		5,410		4,182		1972		12/05/84		5-30 yrs
Terrace Gardens		433		6,957		7,390		5,339		1973		10/26/84		5-30 yrs
Forest Ridge Apartments		701		9,737		10,438		7,917		1974		10/26/84		5-30 yrs
Scotchollow		3,510		29,451		32,961		23,388		1973		10/26/84		5-30 yrs
Pathfinder Village		2,753		17,430		20,183		13,571		1971		10/26/84		5-30 yrs
Buena Vista Apartments		893		5,870		6,763		4,785		1972		10/26/84		5-30 yrs
Mountain View Apartments		1,289		11,236		12,525		8,109		1978		10/26/84		5-30 yrs
Crosswood Park		471		11,590		12,061		7,817		1977		12/05/84		5-30 yrs
Casa De Monterey		869		8,821		9,690		6,868		1970		10/26/84		5-30 yrs
The Bluffs		193		4,793		4,986		4,030		1968		10/26/84		5-30 yrs
Watergate Apartments		263		7,978		8,241		6,268		1972		10/26/84		5-30 yrs
Shadowood Apartments		209		4,717		4,926		3,892		1974		11/14/84		5-30 yrs
Vista Village Apartments		568		7,441		8,009		6,011		1971		10/26/84		5-30 yrs
Towers Of Westchester Park		529		19,563		20,092		15,498		1971		10/26/84		5-30 yrs
TOTAL	$	13,404	$	162,434	$	175,838	$	126,814

The aggregate cost of the investment properties for Federal income tax purposes at December 31, 2005 and 2004 is approximately $192,554,000 and $185,671,000, respectively. The accumulated depreciation for Federal income tax purposes at December 31, 2005 and 2004, is approximately $158,183,000 and $154,247,000, respectively.

Reconciliation of Investment Properties and Accumulated Depreciation (in thousands):

	2005			2004			2003
Investment Properties
Balance at beginning of year	$	168,863		$	165,448		$	162,478
Property improvements and replacements		7,344			3,450			3,091
Dispositions of property		(369	)		(35	)		(121	)
Balance at end of year	$	175,838		$	168,863		$	165,448

	2005			2004			2003
Accumulated Depreciation
Balance at beginning of year	$	119,509		$	112,389		$	105,494
Additions charged to expense		7,614			7,147			6,984
Dispositions of property		(309	)		(27	)		(89	)
Balance at end of year	$	126,814		$	119,509		$	112,389

B-16

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note I — Income Taxes

The following is a reconciliation of reported net loss per the financial statements to the Federal taxable income to partners (in thousands except per unit amounts):

	2005			2004			2003
Net loss as reported	$	(9,455	)	$	(9,202	)	$	(7,134	)
Depreciation differences		3,678			4,368			4,120
Unearned income		(39	)		(62	)		14
Casualty loss		(564	)		(45	)		(124	)
Residual proceeds expense		6,240			5,533			5,079
Other		(114	)		33			645
Federal taxable (loss) income	$	(254	)	$	625		$	2,600
Portfolio I Allocation	$	(180	)	$	441		$	1,836
Portfolio II Allocation		(74	)		184			764
Net income per limited partnership interest:
Portfolio I Allocation	$	5,305		$	2,772		$	4,147
Portfolio II Allocation		5,352			2,797			4,183

The following is a reconciliation between the Venture’s reported amounts and Federal tax basis of net liabilities at December 31, 2005 and 2004 (in thousands):

	2005			2004
Net liabilities as reported	$	(191,318	)	$	(181,863	)
Land and buildings		16,716			16,808
Accumulated depreciation		(31,369	)		(34,738	)
Syndication costs		17,650			17,650
Deferred gain		42,225			42,225
Other deferred costs		9,601			9,601
Other		(52,531	)		(52,213	)
Notes payable		4,882			4,882
Subscription notes receivable		1,837			1,837
Mortgage payable		(47,727	)		(47,727	)
Residual proceeds liability		25,505			19,265
Accrued interest		9,571			9,571
Net liabilities — Federal tax basis	$	(194,958	)	$	(194,702	)

Note J — Contingencies

AIMCO Properties L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call”. Additionally, the complaint alleges AIMCO Properties L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that

B-17

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

they worked in excess of 40 hours in a week. In June 2005 the Court conditionally certified the collective action on both the on-call and overtime issues, which allows the plaintiffs to provide notice of the collective action to all non-exempt maintenance workers from August 7, 2000 through the present. Notices have been sent out to all current and former hourly maintenance workers. The opt-in period has not yet closed. Defendants will have the opportunity to move to decertify the collective action. Because the court denied plaintiffs’ motion to certify state subclasses, on September 26, 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and on November 5, 2005 in Montgomery County Maryland Circuit Court. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined financial condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

SEC Investigation

On December 19, 2005, AIMCO announced that the Central Regional Office of the Securities and Exchange Commission (the “Commission”) has informed AIMCO that its investigation has been recommended for termination and no enforcement action has been recommended to the Commission regarding AIMCO.

B-18

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note K — Selected Quarterly Financial Data (Unaudited)

The following is a summary of the unaudited quarterly results of operations for the Venture (in thousands, except per interest data):

	1st			2nd			3rd			4th
	Quarter			Quarter			Quarter			Quarter			Total
2005
Total revenues	$	7,822		$	7,977		$	8,621		$	8,633		$	33,053
Total expenses		10,409			10,392			10,785			10,922			42,508
Net loss	$	(2,587	)	$	(2,415	)	$	(2,164	)	$	(2,289	)	$	(9,455	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(2,783	)	$	(2,597	)	$	(2,330	)	$	(2,461	)	$	(10,171	)
Portfolio II (267 interests issued and outstanding)	$	(2,783	)	$	(2,599	)	$	(2,326	)	$	(2,464	)	$	(10,172	)

	1st			2nd			3rd			4th
	Quarter			Quarter			Quarter			Quarter			Total
2004
Total revenues	$	7,474		$	7,453		$	7,764		$	7,883		$	30,574
Total expenses		9,643			9,919			9,791			10,423			39,776
Net loss	$	(2,169	)	$	(2,466	)	$	(2,027	)	$	(2,540	)	$	(9,202	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(2,334	)	$	(2,652	)	$	(2,181	)	$	(2,732	)	$	(9,899	)
Portfolio II (267 interests issued and outstanding)	$	(2,333	)	$	(2,652	)	$	(2,182	)	$	(2,731	)	$	(9,898	)

B-19

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED BALANCE SHEETS

	September 30,			December 31,
	2006			2005
	(Unaudited)			(Note)
	(In thousands)
ASSETS
Cash and cash equivalents	$	1,864		$	2,419
Receivables and deposits		2,479			2,343
Restricted escrows		245			251
Other assets		1,137			786
Investment properties:
Land		13,404			13,404
Buildings and related personal property		165,282			162,434
		178,686			175,838
Less accumulated depreciation		(132,436	)		(126,814	)
		46,250			49,024
	$	51,975		$	54,823
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	1,371		$	1,665
Tenant security deposit liabilities		1,006			893
Accrued property taxes		1,035			670
Other liabilities		750			800
Accrued interest		664			878
Due to affiliates (Note D)		12,512			10,884
Mortgage notes payable, including $21,498 and $22,674 due to an affiliate at September 30, 2006 and December 31, 2005, respectively (Note D)		117,704			120,561
Mortgage participation liability (Note C)		39,742			25,505
Notes payable (Note B)		42,060			42,060
Deferred gain on extinguishment of debt (Note B)		42,225			42,225
Partners’ Deficit		(207,094	)		(191,318	)
	$	51,975		$	54,823

Note:  The combined balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

B-20

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Unaudited)
	(In thousands, except per partnership interest data)
Revenues:
Rental income	$	8,083		$	7,724		$	23,948		$	22,434
Other income		777			568			2,210			1,657
Casualty gains (Note E)		300			329			538			329
Total revenues		9,160			8,621			26,696			24,420
Expenses:
Operating		3,531			3,244			10,067			9,423
Property management fee to an affiliate		348			322			1,024			937
General and administrative		156			151			468			531
Depreciation		1,954			1,956			5,889			5,650
Interest		9,951			4,565			23,275			13,408
Property taxes		599			547			1,749			1,637
Total expenses		16,539			10,785			42,472			31,586
Net loss	$	(7,379	)	$	(2,164	)	$	(15,776	)	$	(7,166	)
Net loss allocated to general partners (2%)	$	(148	)	$	(43	)	$	(316	)	$	(143	)
Net loss allocated to limited partners (98%)		(7,231	)		(2,121	)		(15,460	)		(7,023	)
	$	(7,379	)	$	(2,164	)	$	(15,776	)	$	(7,166	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(7,937	)	$	(2,330	)	$	(16,970	)	$	(7,710	)
Portfolio II (267 interests issued and outstanding)	$	(7,936	)	$	(2,326	)	$	(16,970	)	$	(7,708	)

B-21

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF CHANGES IN PARTNERS’ DEFICIT

	VMS National Residential Portfolio I
	Limited Partners
										Limited
	General			Accumulated			Subscription			Partners’
	Partners			Deficit			Notes			Total			Total
	(Unaudited)
	(In thousands)
Partners’ deficit at December 31, 2005	$	(4,006	)	$	(130,236	)	$	(502	)	$	(130,738	)	$	(134,744	)
Net loss for the nine months ended September 30, 2006		(223	)		(10,929	)		—			(10,929	)		(11,152	)
Partners’ deficit at September 30, 2006	$	(4,229	)	$	(141,165	)	$	(502	)	$	(141,667	)	$	(145,896	)

	VMS National Residential Portfolio II
	Limited Partners
										Limited
	General			Accumulated			Subscription			Partners’
	Partners			Deficit			Notes			Total			Total
	(Unaudited)
	(In thousands)
Partners’ deficit at December 31, 2005	$	(1,675	)	$	(54,571	)	$	(328	)	$	(54,899	)	$	(56,574	)
Net loss for the nine months ended September 30, 2006		(93	)		(4,531	)		—			(4,531	)		(4,624	)
Partners’ deficit at September 30, 2006	$	(1,768	)	$	(59,102	)	$	(328	)	$	(59,430	)	$	(61,198	)
Combined total at September 30, 2006	$	(5,997	)	$	(200,267	)	$	(830	)	$	(201,097	)	$	(207,094	)

B-22

VMS NATIONAL PROPERTIES JOINT VENTURE

COMBINED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2006			2005
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net loss	$	(15,776	)	$	(7,166	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		5,889			5,650
Amortization of mortgage discounts		14,237			4,599
Casualty gains		(538	)		(329	)
Change in accounts:
Receivables and deposits		(136	)		(1,004	)
Other assets		(351	)		(363	)
Accounts payable		(57	)		437
Tenant security deposit liabilities		113			24
Accrued property taxes		365			374
Accrued interest		817			1,389
Other liabilities		(50	)		(62	)
Due to affiliate		741			(107	)
Net cash provided by operating activities		5,254			3,442
Cash flows from investing activities:
Property improvements and replacements		(3,407	)		(5,616	)
Net withdrawals from restricted escrows		6			770
Net insurance proceeds		593			363
Net cash used in investing activities		(2,808	)		(4,483	)
Cash flows from financing activities:
Payments on mortgage notes payable		(3,888	)		(2,585	)
Payments on advances from an affiliate		(856	)		(1,794	)
Advances from an affiliate		1,743			5,492
Net cash (used in) provided by financing activities		(3,001	)		1,113
Net (decrease) increase in cash and cash equivalents		(555	)		72
Cash and cash equivalents at beginning of period		2,419			2,064
Cash and cash equivalents at end of period	$	1,864		$	2,136
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $818 and $1,492 paid to an affiliate	$	7,271		$	7,721
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable	$	1,031		$	1,107

At September 30, 2006 and December 31, 2005 accounts payable and property improvements and replacements were adjusted by approximately $406,000 and $643,000, respectively.

At September 30, 2005 and December 31, 2004 accounts payable and property improvements and replacements were adjusted by approximately $1,096,000 and $857,000, respectively.

B-23

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note A — Basis of Presentation

The accompanying unaudited combined financial statements of VMS National Properties Joint Venture (the “Venture” or “Registrant”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2006 are not necessarily indicative of the results which may be expected for the year ending December 31, 2006. For further information, refer to the combined financial statements and footnotes thereto included in the Venture’s Annual Report on Form 10-K for the year ended December 31, 2005. The Managing General Partner is a wholly owned subsidiary of Apartment Investment and Management Company (“AIMCO”), a publicly traded real estate investment trust.

Note B — Deferred Gain and Notes Payable

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $110,000,000, which was less than the $152,225,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $42,225,000, which is the difference between the note face amounts and the agreed valuation amounts.

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. As a result of the 1993 bankruptcy proceedings, the Assignment Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust, which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At September 30, 2006 and December 31, 2005, the $38,810,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount, which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

B-24

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The note in the amount of $3,250,000 does not bear interest. As a result of the 1993 bankruptcy proceedings, the Long-Term Arrangement Fee Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

Note C — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and an unrelated third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”), which collectively total approximately $42,139,000 from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $61,583,000 and $32,531,000 for the nine months ended September 30, 2006 and 2005, respectively. The Managing General Partner reevaluated the fair value of the participation feature during the nine months ended September 30, 2006, the nine months ended September 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $29,052,000, increased by approximately $522,000 and reduced by approximately $4,509,000, respectively. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined either by appraisal or by using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the nine months ended September 30, 2006 is attributable to an increase in the fair value of the collateral properties. The increase in the fair value of the participation feature for the nine months ended September 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the nine months ended September 30, 2006 and 2005, the Venture amortized approximately $14,237,000 and $4,599,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at September 30, 2006 and December 31, 2005 was approximately $21,841,000 and $7,026,000, respectively.

B-25

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note D — Transactions with Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000, adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum.

Asset management fees of approximately $257,000 and $263,000 were charged by affiliates of the Managing General Partner for the nine months ended September 30, 2006 and 2005, respectively. These fees are included in general and administrative expense. At December 31, 2005, approximately $295,000 of such fees were owed and are included in due to affiliates. At September 30, 2006, approximately $86,000 of such fees were owed and are included in due to affiliates.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid or accrued to such affiliates approximately $1,024,000 and $937,000 for the nine months ended September 30, 2006 and 2005, respectively, which are included in property management fee expense. At December 31, 2005, approximately $11,000 of such fees were owed and are included in due to affiliates. No amounts were owed at September 30, 2006.

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $75,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in general and administrative expense. At September 30, 2006, approximately $25,000 of such reimbursements were owed and are included in due to affiliates. No amounts were owed at December 31, 2005.

During the nine months ended September 30, 2006 and 2005, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $235,000 and $126,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties. During the third quarter of 2005, it was determined by the Managing General Partner that approximately $398,000 of such fees previously charged in 2005 and approximately $133,000 of such fees previously charged in 2004 should not have been charged and the total was refunded to the Venture during the first quarter of 2006. At December 31, 2005, the amount to be refunded of approximately $292,000 was included in receivables and deposits.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $93,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in operating expense.

At September 30, 2006 and December 31, 2005, the Venture owed loans of approximately $10,526,000 and $9,639,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $1,875,000 and $939,000, respectively, which are included in due to affiliates on the combined balance sheets. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (11.25% at September 30, 2006). The Venture recognized interest expense of approximately $942,000 and $566,000 during the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006, an affiliate of the Managing General Partner loaned five of the properties approximately $1,432,000 to cover outstanding capital improvement payables and two properties approximately $311,000 to cover operating expenses. During the nine months ended September 30, 2005, an affiliate of the Managing General Partner loaned fifteen of the properties approximately $5,135,000 to cover outstanding capital improvement payables and two properties approximately $357,000 to cover operating expenses. During the nine months ended September 30, 2006 and 2005, the Venture paid approximately $856,000 and $1,794,000, respectively, of principal

B-26

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

and approximately $6,000 and $878,000, respectively, of accrued interest on loans owed to an affiliate of the Managing General Partner. Subsequent to September 30, 2006, an affiliate of the Managing General Partner loaned all fifteen of the properties approximately $1,840,000 to cover good faith deposits for the potential refinancing of the Venture’s investment properties anticipated during the first quarter of 2007 and one property approximately $109,000 to cover outstanding capital improvement payables.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At September 30, 2006 and December 31, 2005, the outstanding balance of $79,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the limited partners receiving distributions equal to, at a minimum, their aggregate capital contributions. The Managing General Partner does not anticipate that any of the various fees will be owed upon disposition of the properties, as the specified distributions to the limited partners will not be fully met. There were no property dispositions for which proceeds were received during either of the nine month periods ended September 30, 2006 or 2005.

The junior debt of approximately $21,498,000 and $22,674,000 at September 30, 2006 and December 31, 2005, respectively, is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the nine months ended September 30, 2006 and 2005, the Venture recognized interest expense of approximately $1,822,000 and $1,834,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the nine months ended September 30, 2006 and 2005, the Venture was charged by AIMCO and its affiliates approximately $800,000 and $457,000, respectively, for insurance coverage and fees associated with policy claims administration.

Note E — Casualty Gain

During the nine months ended September 30, 2006, an additional casualty gain of approximately $4,000 was recorded at Chapelle Le Grande Apartments. The casualty gain related to a plumbing pipe break, occurring on June 27, 2005, which caused damage to two units at the property. The gain was the result of the receipt of additional insurance proceeds of approximately $4,000 offset by less than $1,000 of undepreciated property improvements and replacements being written off. During the year ended December 31, 2005 the Venture recognized a gain of approximately $60,000 from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $66,000 offset by approximately $6,000 of undepreciated property improvements and replacements being written off.

During the nine months ended September 30, 2006, an additional casualty gain of approximately $524,000 was recorded at Watergate Apartments. The casualty gain related to a fire occurring on May 27, 2005, which caused damage to eight units at the property. The gain was the result of the receipt of additional insurance proceeds of approximately $579,000 offset by approximately $55,000 of additional undepreciated property improvements and replacements being written off. During the year ended December 31, 2005, a casualty gain of approximately $229,000 was recorded at Watergate Apartments from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $250,000 offset by approximately $21,000 of undepreciated property improvements and replacements being written off.

B-27

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

During the nine months ended September 30, 2006, an additional casualty gain of approximately $10,000 was recorded at Casa De Monterey Apartments. The casualty gain related to a fire occurring in February 2005 caused by a contractor working at the property that severely damaged six units of an eight unit apartment building. The gain was the result of the receipt of additional insurance proceeds of approximately $10,000. During the year ended December 31, 2005, a casualty gain of approximately $278,000 was recorded at Casa De Monterey Apartments from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $308,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off.

Note F — Contingencies

AIMCO Properties L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges AIMCO Properties L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted in to the class. The defendants are moving to decertify the collective action on both issues in briefs to be filed by August 15, 2006. Because the court denied plaintiffs’ motion to certify state subclasses, on September 26, 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and on November 5, 2005 in Montgomery County Maryland Circuit Court. The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined financial condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

B-28

VMS NATIONAL PROPERTIES JOINT VENTURE

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

B-29

ANNEX C

APPRAISAL RIGHTS

VMS NATIONAL PROPERTIES JOINT VENTURE

PROCEDURE FOR LIMITED PARTNER DISSENT AND APPRAISAL

A holder of limited partnership interests in either of the Partnerships may object to the terms of the Affiliated Contribution by timely completing, signing, dating and delivering the Notice of Objection as described in the Procedure for Objecting to a Transaction, which is contained in the proxy statement-prospectus.

The following provisions shall govern the process for resolving claims of objecting limited partners who seek to perfect their contractual appraisal rights. This process is not provided for or required by statute or by the relevant partnership agreements, but tracks, in many respects, similar procedures for dissent and appraisal provided to shareholders who object to a corporate merger in the State of Illinois.

Failure to take any action required by this procedure in a timely fashion will result in a waiver of a limited partner’s appraisal rights as described herein (“Appraisal Rights”). Any limited partner who wishes to exercise such Appraisal Rights should consider consulting his, her or its attorney with respect to compliance with these procedures.

As described in the proxy statement-prospectus, VMS, the Partnerships and Aimco Properties, LLC are hereby providing a procedure for limited partners who object to the Affiliated Contribution by completing and signing, dating and delivering the Notice of Objection to the information agent, by United States mail, in the self-addressed, postage-paid envelope enclosed for that purpose, by overnight courier or by facsimile at the address or facsimile number set forth on the Notice of Objection, all in accordance with the instructions contained therein and as described in the proxy statement-prospectus. Limited partners who properly completed, signed and delivered the Notice of Objection to the information agent and not properly revoked prior to          , 2007 will be entitled to participate in dissent and appraisal process described herein.

A limited partner electing to exercise Appraisal Rights must, not later than 30 days after the date of mailing of this proxy statement-prospectus, demand in writing from Aimco Properties, LLC payment for the Fair Value (as defined below) of such holder’s limited partnership interests. The demand must be delivered to VMS, c/o The Altman Group, Inc., by mail at 1200 Wall Street, 3rd Floor, Lyndhurst, New Jersey, 07071, or by fax at (201) 460-0050 and must reasonably inform VMS of the identity of the limited partner of record, the identity of the Partnership in which the limited partner holds an interest and of such limited partner’s intention to demand payment for such holder’s limited partner interests. Only the limited partner is entitled to demand Appraisal Rights for limited partnership interests in that holder’s name. The demand must be executed by or for the holder of record, fully and correctly, as the holder’s name appears on the limited partnership records. If the limited partnership interests are owned in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand should be executed in that capacity. If limited partnership interests are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all owners. An authorized agent, including one of two or more joint interest holders, may execute the demand for Appraisal Rights for a limited partnership holder of record. However, the agent must identify the owner or owners of record and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the limited partnership owner or owners of record. A holder of record, such as a broker, who holds limited partnership interests as a nominee for beneficial owners may exercise a holder’s Appraisal Rights with respect to limited partnership interests held for all or less than all of such beneficial owners. In such case, the written demand should set forth the number limited partnership units covered by the demand. Where no number of limited partnership units is expressly mentioned, the demand will be presumed to cover all limited partnership interests outstanding in the name of the holder of record. FAILURE TO FILE A NOTICE OF OBJECTION WITHIN THE TIME LIMITATION SET FORTH ABOVE SHALL CONSTITUTE A WAIVER OF A LIMITED PARTNER’S APPRAISAL RIGHTS.

Within 10 days after the date on which the Affiliated Contribution is consummated (or 30 days after a dissenting limited partner delivers to VMS written notice of objection, whichever is later), Aimco Properties, LLC

C-1

shall send each limited partner who has delivered a written demand for payment a statement setting forth the net proceeds payable to such limited partner from the sale of the Properties (the “Statement of Value”).

If a dissenting limited partner believes that the net proceeds to be paid to such limited partner from the sale of the Properties are less than the Fair Value of such limited partner’s interest in the respective Partnership, such dissenting limited partner, within 30 days from the delivery of Aimco Properties, LLC’s Statement of Value, shall notify Aimco Properties, LLC in writing (the “Partner Demand”) of the limited partner’s estimated Fair Value of his, her or its partnership interest and demand payment for the difference between the limited partner’s estimate of Fair Value and the net proceeds otherwise payable by Aimco Properties, LLC pursuant to the Statement of Value.

If, within 60 days from delivery to Aimco Properties, LLC of the Partner Demand, Aimco Properties, LLC and the dissenting limited partner have not agreed in writing upon the Fair Value of the partnership interests of the dissenting limited partner, Aimco Properties, LLC shall either (a) pay the difference in value demanded by the limited partner in the Partner Demand, or (b) file a Demand for Arbitration (with the American Arbitration Association in accordance with its Commercial Arbitration Rules, as modified by the Private Arbitration Rules set forth below) by a sole arbitrator, who will conduct the proceedings in Denver, Colorado, to determine the Fair Value of the dissenting limited partner’s partnership interests. Dissenting limited partners have the right to file the same Demand for Arbitration in the event Aimco Properties, LLC has not taken such action by the end of the 60 day period.

Any arbitrator so appointed will appraise the Fair Value of the limited partnership interests owned by dissenting limited partners. The arbitrator may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of Fair Value. The appraisers have the power described in the order appointing them, or in any amendment to it. Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the arbitrator finds that the Fair Value of his or her partnership interest, plus interest, exceeds the amount paid by Aimco Properties, LLC. Aimco Properties, LLC shall make all dissenters, regardless of their state of residency, whose demands remain unsettled, parties to the proceeding as an action against their partnership interest and all parties shall be served with a copy of the Demand for Arbitration.

All notices to be given in accordance with this process may be served by (a) registered or certified mail or (b) personal delivery via a nationally-recognized overnight delivery company such as FedEx, UPS or DHL. Failure of Aimco Properties, LLC to commence an arbitration proceeding pursuant to this Section shall not limit or affect the right of the dissenting limited partners to otherwise commence an action as permitted by law.

The arbitrator, in a proceeding commenced hereunder, shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the arbitrator under this procedure, but shall exclude the fees and expenses of counsel and experts for the respective parties. If the Fair Value of the partnership interests of dissenting limited partners (as determined by the arbitrator) materially exceeds the amount which Aimco Properties, LLC estimated to be the Fair Value of such partnership interests, or if no estimate was made by Aimco Properties, LLC, then all or any part of the costs may be assessed against Aimco Properties, LLC. If the amount which any dissenter estimated to be the Fair Value of the limited partnership interests materially exceeds the Fair Value of such interests as determined by the arbitrator, then all or any part of the costs may be assessed against the dissenting limited partners, pro rata in accordance with their proportionate ownership interest in the Partnership(s). The arbitrator may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the arbitrator finds equitable, as follows:

(1) Against Aimco Properties, LLC and in favor of any or all dissenters if the arbitrator finds that Aimco Properties, LLC did not substantially comply with the requirements herein.

(2) Against either Aimco Properties, LLC or a dissenter and in favor of any other party if the arbitrator finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this procedural process.

If the arbitrator finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against Aimco Properties, LLC, the arbitrator may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefited.

C-2

As used in this procedure:

(1) “Fair value” with respect to a dissenter’s limited partnership interests, means the value of the partnership interests immediately before the consummation of the Affiliated Contribution.

(2) “Interest” means interest from the effective date of consummation of the Affiliated Contribution until the date of payment, at the national prime rate of interest (as reported in the Wall Street Journal “Money Rates” section), adjusted monthly as of the last business day of such month.

PRIVATE ARBITRATION RULES

Qualifications of Arbitrators.  The arbitrator selected shall be attorneys with at least five (5) years experience in similar transactions or commercial arrangements.

Discovery.  Permitted discovery in any arbitration proceeding shall be limited as set forth as follows, and the parties hereby direct any arbitrator to follow and enforce the provisions of this section, and, in the event any party fails to comply with such rules, to award relief to the opposing party.

(i) Not later than thirty (30) days after the filing of a claim for arbitration, the parties will exchange detailed statements setting forth the facts supporting the claim(s) and all defenses to be raised during the arbitration, and a list of all exhibits and witnesses.

(ii) Not later than twenty-one (21) days prior to the arbitration hearing, the parties will exchange a final list of all exhibits and all witnesses, including any expert witnesses, who shall be designated as such, together with a summary of their testimony, a copy of all documents to be relied upon or referenced in such hearing, and a detailed description of any non-documentary exhibits.

(iii) Except in the case of expert witnesses, under no circumstances will the use of interrogatories, requests for admission, requests for the production of documents or witnesses, or the taking of depositions, be permitted. In the case of any expert witness (A) all information and documents relied upon by an expert witness will be delivered to the opposing party within the 21-day period, (B) the opposing party will be permitted to depose the expert witness within, (C) the opposing party will be permitted to designate expert witnesses as rebuttal witnesses, and (D) the arbitration hearing will be continued to the earliest possible date that enables the foregoing limited discovery to be accomplished. In the event that a party’s expert witness is not available to be deposed by the opposing party within thirty (30) days after designation of such expert witness, such expert and his testimony shall be excluded from the proceeding.

No Special Damages.  No arbitrator may award exemplary or punitive damages.

Confidentiality.  All arbitration proceedings, including testimony and evidence produced in hearings or in depositions, will be kept confidential by all parties concerned (except for the entry of judgment in any court).

Binding Effect.  The determination of said arbitrator shall be binding on the parties hereto, and shall not, absent bad faith on the part of said arbitrator, be appealable or otherwise subject to challenge.

Required Findings.  The arbitrators engaged pursuant to this Agreement shall make specific findings of fact and conclusions of law, and shall award relief on the basis of such findings.

Enforcement.  Judgment on any award rendered by the arbitrator may be entered in any court having jurisdiction thereof and may be confirmed within the federal judicial district which includes the residence of the party against whom such award or order was entered.

Venue.  The site for any arbitration proceeding shall be in Denver, Colorado.

No Equitable Relief.  Relief provided by the arbitrator shall be strictly limited to the payment of a monetary award. Nothing herein shall permit any other equitable relief or provisional remedy, including but not limited to injunctive or preliminary relief, replevin or attachment.

*****

C-3

ANNEX D

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED BALANCE SHEET

	September 30,
	2006
	(In thousands)
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	634
Receivables and deposits		832
Restricted escrows		121
Other assets		369
Investment properties:
Land		3,089
Buildings and related personal property		59,803
		62,892
Less accumulated depreciation		(48,653	)
		14,239
	$	16,195
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	736
Tenant security deposit liabilities		263
Accrued property taxes		744
Other liabilities		325
Accrued interest		289
Due to affiliates (Note D)		3,378
Mortgage notes payable, including $9,604 due to an affiliate at September 30, 2006 (Note D)		37,994
Mortgage participation liability (Note C)		9,538
Notes payable (Note B)		19,423
Deferred gain on extinguishment of debt (Note B)		22,852
Partners’ Deficit		(79,347	)
	$	16,195

See Accompanying Notes to Combined Financial Statements

D-1

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED STATEMENTS OF OPERATIONS

	Nine Months Ended
	September 30,
	2006			2005
	(In thousands, except per interest data) (Unaudited)
Revenues:
Rental income	$	7,314		$	7,289
Other income		954			615
Casualty gains (Note E)		528			53
Total revenues		8,796			7,957
Expenses:
Operating		4,115			3,753
Property management fee to an affiliate		322			308
General and administrative		223			253
Depreciation		2,142			2,054
Interest		6,343			3,924
Property taxes		690			600
Total expenses		13,835			10,892
Net loss	$	(5,039	)	$	(2,935	)
Net loss allocated to general partners (2%)	$	(101	)	$	(59	)
Net loss allocated to limited partners (98%)		(4,938	)		(2,876	)
	$	(5,039	)	$	(2,935	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(5,420	)	$	(3,157	)
Portfolio II (267 interests issued and outstanding)	$	(5,421	)	$	(3,157	)

See Accompanying Notes to Combined Financial Statements

D-2

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2006			2005
	(In thousands) (Unaudited)
Cash flows from operating activities:
Net loss	$	(5,039	)	$	(2,935	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		2,142			2,054
Amortization of mortgage discounts		3,417			1,103
Casualty gains		(528	)		(53	)
Change in accounts:
Receivables and deposits		114			(242	)
Other assets		(110	)		(80	)
Accounts payable		114			187
Tenant security deposit liabilities		23			8
Accrued property taxes		74			85
Other liabilities		(57	)		(92	)
Accrued interest		427			554
Due to affiliate		1,244			119
Net cash provided by operating activities		1,821			708
Cash flows from investing activities:
Property improvements and replacements		(1,628	)		(2,079	)
Net withdrawals from (deposits to) restricted escrows		(2	)		686
Net insurance proceeds		583			58
Net cash used in investing activities		(1,047	)		(1,335	)
Cash flows from financing activities:
Payments on mortgage notes payable		(994	)		(596	)
Payments on advances from an affiliate		(222	)		(505	)
Advances from an affiliate		222			1,749
Net cash (used in) provided by financing activities		(994	)		648
Net (decrease) increase in cash and cash equivalents		(220	)		21
Cash and cash equivalents at beginning of period		854			609
Cash and cash equivalents at end of period	$	634		$	630
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $390 and $448 paid to an affiliate	$	2,249		$	2,278
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable	$	421		$	488

At September 30, 2006 and December 31, 2005 accounts payable and property improvements and replacements were adjusted by approximately $205,000 and $181,000, respectively.

At September 30, 2005 and December 31, 2004 accounts payable and property improvements and replacements were adjusted by approximately $313,000 and $614,000, respectively.

See Accompanying Notes to Combined Financial Statements

D-3

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)

Note A — Basis of Presentation

The accompanying financial statements reflect the accounts of the Unaffiliated Sale Properties of VMS National Properties Joint Venture (the “Venture”) and an allocation of amounts in other accounts of the Venture. The Unaffiliated Sale Properties are properties that may be sold to one or more unaffiliated third parties as described more fully in a Registration Statement on Form S-4 as filed with the Securities and Exchange Commission by Apartment Investment and Management Company (“AIMCO”) and AIMCO Properties, L.P. on August 22, 2006 and subsequently amended. The Unaffiliated Sale Properties consist of eight apartment properties known as North Park Apartments, Chapelle Le Grande, Terrace Gardens, Forest Ridge Apartments, The Bluffs, Watergate Apartments, Shadowood Apartments and Vista Village Apartments.

The Venture was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement (the “Venture Agreement”) dated September 27, 1984, between VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”) (collectively, the “Ventures”). Effective December 12, 1997, the managing general partner of each of the Ventures was transferred from VMS Realty Investment, Ltd. (“VMSRIL”) (formerly VMS Realty Partners) to MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), a wholly-owned subsidiary of MAE GP Corporation (“MAE GP”) and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into AIMCO, a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States.

Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Venture Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture’s operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Venture Agreement.

The Venture maintains a separate general ledger for each of its apartment properties. The accounts in the general ledgers for the Unaffiliated Sale Properties were aggregated in the preparation of these financial statements. The Venture also maintains a general ledger containing accounts used for general activities of the Venture that are not specifically associated with a particular property. These accounts consist primarily of certain notes payable and a deferred gain. Amounts in these accounts and related interest expense were allocated to the Unaffiliated Sale Properties in proportion to the number of apartment units, the value of the first mortgages or the fair market value attributed to the Unaffiliated Sale Properties as appropriate based upon the nature of the account. In addition, certain general and administrative amounts were allocated to the Unaffiliated Sale Properties in proportion to the number of apartment units attributed to the Unaffiliated Sale Properties.

These financial statements were prepared by the Venture to provide information that may be useful in evaluating the transactions described in the aforementioned Form S-4 and should be read in conjunction with the related combined financial statements of the Venture included in the Venture’s Quarterly Reports on Form 10-Q for the nine months ended September 30, 2006 and 2005 and the Venture’s Annual Report on Form 10-K for the year ended December 31, 2005. The amounts reported in these financial statements are not necessarily indicative of the amounts that would have been reported had the Unaffiliated Sale Properties been operated separately from other activities of the Venture.

D-4

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note B — Deferred Gain and Notes Payable

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $34,994,000, which was less than the $57,846,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $22,852,000, which is the difference between the note face amounts and the agreed valuation amounts.

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. As a result of the 1993 bankruptcy proceedings, the Assignment Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust, which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At September 30, 2006, the $18,481,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount, which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

The note in the amount of $942,000 does not bear interest. As a result of the 1993 bankruptcy proceedings, the Long-Term Arrangement Fee Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

Note C — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and a third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 ($3,240,000 is allocated to the Unaffiliated Sale Properties) plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership Advance Account in

D-5

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”), which collectively total approximately $42,139,000 ($19,461,000 is allocated to the Unaffiliated Sale Properties) from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $14,780,000 for the nine months ended September 30, 2006. The Managing General Partner reevaluated the fair value of the participation feature during the nine months ended September 30, 2006, the nine months ended September 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $6,972,000, increased by approximately $125,000 and reduced by approximately $1,082,000, respectively. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined either by appraisal or by using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the nine months ended September 30, 2006 is attributable to an increase in the fair value of the collateral properties. The increase in the fair value of the participation feature for the nine months ended September 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the nine months ended September 30, 2006 and 2005, the Venture amortized approximately $3,417,000 and $1,103,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at September 30, 2006 was approximately $5,242,000.

Note D — Transactions with Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000 ($143,000 is allocated to the Unaffiliated Sale Properties), adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum ($48,000 is allocated to the Unaffiliated Sale Properties).

Asset management fees of approximately $122,000 and $125,000 were charged by affiliates of the Managing General Partner for the nine months ended September 30, 2006 and 2005, respectively. These fees are included in general and administrative expense. At September 30, 2006, approximately $41,000 of such fees were owed and are included in due to affiliates.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid or accrued to such affiliates approximately $322,000 and $308,000 for the nine months ended September 30, 2006 and 2005, respectively, which are included in property management fee expense.

D-6

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $36,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in general and administrative expense. At September 30, 2006, approximately $12,000 of such reimbursements were owed and are included in due to affiliates.

During the nine months ended September 30, 2006 and 2005, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $170,000 and $59,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $37,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in operating expense.

At September 30, 2006, the Venture owed loans of approximately $2,735,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $591,000, which are included in due to affiliates on the combined balance sheet. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (11.25% at September 30, 2006). The Venture recognized interest expense of approximately $260,000 and $157,000 during the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006 and 2005, the Venture paid approximately $222,000 and $505,000, respectively of principal and approximately $2,000 and $170,000, respectively, of accrued interest on loans owed to an affiliate of the Managing General Partner.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At September 30, 2006, the outstanding balance of $38,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the limited partners receiving distributions equal to, at a minimum, their aggregate capital contributions. The Managing General Partner does not anticipate that any of the various fees will be owed upon disposition of the properties, as the specified distributions to the limited partners will not be fully met. There were no property dispositions for which proceeds were received during either of the nine month periods ended September 30, 2006 or 2005.

The junior debt of approximately $9,604,000 at September 30, 2006 is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the nine months ended September 30, 2006 and 2005, the Venture recognized interest expense of approximately $801,000 and $773,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the nine months ended September 30, 2006 and 2005, the Venture was charged by AIMCO and its affiliates approximately $312,000 and $176,000 respectively, for insurance coverage and fees associated with policy claims administration.

Note E — Casualty Gains

During the nine months ended September 30, 2006, an additional casualty gain of approximately $4,000 was recorded at Chapelle Le Grande Apartments. The casualty gain related to a plumbing pipe break, occurring on June 27, 2005, which caused damage to two units at the property. The gain was the result of the receipt of additional

D-7

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

insurance proceeds of approximately $4,000 offset by less than $1,000 of undepreciated property improvements and replacements being written off. During the year ended December 31, 2005 the Venture recognized a gain of approximately $60,000 from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $66,000 offset by approximately $6,000 of undepreciated property improvements and replacements being written off.

During the nine months ended September 30, 2006, an additional casualty gain of approximately $524,000 was recorded at Watergate Apartments. The casualty gain related to a fire occurring on May 27, 2005, which caused damage to eight units at the property. The gain was the result of the receipt of additional insurance proceeds of approximately $579,000 offset by approximately $55,000 of additional undepreciated property improvements and replacements being written off. During the year ended December 31, 2005, a casualty gain of approximately $229,000 was recorded at Watergate Apartments from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $250,000 offset by approximately $21,000 of undepreciated property improvements and replacements being written off.

Note F — Contingencies

AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues and the plaintiffs have responded. Because the court denied plaintiffs’ motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court. The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities.

D-8

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

D-9

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED BALANCE SHEETS

	December 31,
	2005			2004
	(In thousands)
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	853		$	609
Receivables and deposits		946			754
Restricted escrows		119			827
Other assets		260			222
Investment properties (Notes B and H):
Land		3,089			3,089
Buildings and related personal property		58,473			56,476
		61,562			59,565
Less accumulated depreciation		(46,778	)		(44,156	)
		14,784			15,409
	$	16,962		$	17,821
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	597		$	863
Tenant security deposit liabilities		240			239
Accrued property taxes		670			695
Other liabilities		382			447
Accrued interest		283			197
Due to affiliates (Note G)		3,210			1, 814
Mortgage notes payable, including $9,700 due to an affiliate at 2005 and $9,130 at 2004 (Note C)		38,567			38,579
Mortgage participation liability (Note E)		6,121			4,624
Notes payable (Note D)		19,423			19,423
Deferred gain on extinguishment of debt (Note B)		22,852			22,852
Partners’ Deficit		(75,383	)		(71,912	)
	$	16,962		$	17,821

See Accompanying Notes to Combined Financial Statements

D-10

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED STATEMENTS OF OPERATIONS

	December 31,
	2005			2004			2003
	(In thousands, except per limited partnership interest data)
	(Unaudited)
Revenues:
Rental income	$	9,775		$	9,118		$	9,216
Other income		868			930			859
Casualty gains (Note F)		289			45			64
Total revenues		10,932			10,093			10,139
Expenses:
Operating		4,989			4,499			4,313
Property management fees to an affiliate		419			394			397
General and administrative		327			258			283
Depreciation		2,768			2,559			2,522
Interest, including approximately $2,786, $2,421 and $2,241 to an affiliate		5,282			4,989			4,847
Property taxes		802			830			720
Total expenses		14,587			13,529			13,082
Net loss	$	(3,655	)	$	(3,436	)	$	(2,943	)
Net loss allocated to general partners (2%)	$	(73	)	$	(69	)	$	(59	)
Net loss allocated to limited partners (98%)		(3,582	)	$	(3,367	)	$	(2,884	)
	$	(3,655	)	$	(3,436	)	$	(2,943	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(3,932	)	$	(3,696	)	$	(3,166	)
Portfolio II (267 interests issued and outstanding)	$	(3,931	)	$	(3,696	)	$	(3,166	)

See Accompanying Notes to Combined Financial Statements

D-11

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS

	December 31,
	2005			2004			2003
	(In thousands)
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(3,655	)	$	(3,436	)	$	(2,943	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		2,768			2,559			2,523
Amortization of mortgage discounts		1,497			1,328			1,219
Casualty gains		(289	)		(45	)		(65	)
Change in accounts:
Receivables and deposits		(192	)		(327	)		(13	)
Other assets		(37	)		(33	)		(62	)
Accounts payable		167			4			41
Tenant security deposit liabilities		1			(9	)		28
Due to affiliates		(145	)		139			202
Accrued property taxes		(25	)		95			(3	)
Accrued interest		1,485			748			565
Other liabilities		(65	)		104			(7	)
Net cash provided by operating activities		1,510			1,127			1,485
Cash flows from investing activities:
Property improvements and replacements		(2,603	)		(947	)		(811	)
Net withdrawals from (deposits to) restricted escrows		708			(141	)		(18	)
Insurance proceeds received		316			74			78
Net cash used in investing activities		(1,579	)		(1,014	)		(751	)
Cash flows from financing activities:
Payments on mortgage notes payable		(875	)		(832	)		(872	)
Payments on advances from an affiliate		(778	)		—			—
Advances from an affiliate		1,966			546			—
Net cash provided by (used in) financing activities		313			(286	)		(872	)
Net increase (decrease) in cash and cash equivalents		244			(173	)		(138	)
Cash and cash equivalents at beginning of year		609			782			920
Cash and cash equivalents at end of year	$	853		$	609		$	782
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $1,537, $465, and $1,600 paid to an affiliate	$	2,907		$	2,805		$	2,984
Supplemental disclosure of non-cash information:
Accrued interest added to mortgage notes payable	$	1,399		$	733		$	525
Property improvements and replacements included in accounts payable and other liabilities	$	181		$	614		$	52

See Accompanying Notes to Combined Financial Statements

D-12

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2005

(Unaudited)

Note A — Basis of Presentation

The accompanying financial statements reflect the accounts of the Unaffiliated Sale Properties of VMS National Properties Joint Venture (the “Venture”) and an allocation of amounts in other accounts of the Venture. The Unaffiliated Sale Properties are properties that may be sold to one or more Unaffiliated third parties as described more fully in a Registration Statement on Form S-4 as filed with the Securities and Exchange Commission by Apartment Investment and Management Company (“AIMCO”) and AIMCO Properties, L.P. on August 22, 2006 and subsequently amended. The Unaffiliated Sale Properties consist of eight apartment properties known as North Park Apartments, Chapelle Le Grande, Terrace Gardens, Forest Ridge Apartments, The Bluffs, Watergate Apartments, Shadowood Apartments and Vista Village Apartments.

The Venture was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement (the “Venture Agreement”) dated September 27, 1984, between VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”) (collectively, the “Ventures”). Effective December 12, 1997, the managing general partner of each of the Ventures was transferred from VMS Realty Investment, Ltd. (“VMSRIL”) (formerly VMS Realty Partners) to MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), a wholly-owned subsidiary of MAE GP Corporation (“MAE GP”) and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into AIMCO, a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States.

Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Venture Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture’s operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Venture Agreement.

The Venture maintains a separate general ledger for each of its apartment properties. The accounts in the general ledgers for the Unaffiliated Sale Properties were aggregated in the preparation of these financial statements. The Venture also maintains a general ledger containing accounts used for general activities of the Venture that are not specifically associated with a particular property. These accounts consist primarily of certain notes payable and a deferred gain. Amounts in these accounts and related interest expense were allocated to the Unaffiliated Sale Properties in proportion to the number of apartment units, the value of the first mortgages or the fair market value attributed to the Unaffiliated Sale Properties as appropriate based upon the nature of the account. In addition, certain general and administrative amounts were allocated to the Unaffiliated Sale Properties in proportion to the number of apartment units attributed to the Unaffiliated Sale Properties.

These financial statements were prepared by the Venture to provide information that may be useful in evaluating the transactions described in the aforementioned Form S-4 and should be read in conjunction with the related combined financial statements of the Venture included in the Venture’s Annual Report on Form 10-K for the year ended December 31, 2005. The amounts reported in these financial statements are not necessarily indicative of the amounts that would have been reported had the Unaffiliated Sale Properties been operated separately from other activities of the Venture.

D-13

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note B — Summary of Significant Accounting Policies

Allocation of Income, Loss, and Distributions:

The operating profits and losses of VMS National Properties Joint Venture are allocated to Portfolio I and Portfolio II based on their respective ownership of VMS National Properties Joint Venture, which is 70.69% and 29.31%, respectively. Portfolio I and Portfolio II then combine their respective share of the operating profits and losses of VMS National Properties Joint Venture with their respective operating profits and losses, which is then allocated 98% to the respective limited partners and 2% to the respective general partners of both Portfolio I and Portfolio II.

Operating cash flow distributions for Portfolio I and Portfolio II will be made at the discretion of the Managing General Partner subject to the order of distribution indicated in the Venture’s Second Amended and Restated Plan of Reorganization (the “Plan”) as approved by the US Bankruptcy Court in September 1993. Such distributions will be allocated first to the respective Limited Partners in an amount equal to 12% per year (on a noncumulative basis) of their contributed capital; then, to the general partners, a subordinated incentive fee equal to 10.45% of remaining operating cash flow; and finally, of the balance to be distributed, 98% to the Limited Partners and 2% to the general partners.

Distributions of proceeds arising from the sale or refinancing of the Venture’s properties will be allocated to Portfolio I and Portfolio II in proportion to their respective Venture interests subject to the order of distribution indicated in the Plan. Distributions by Portfolio I and Portfolio II will then be allocated as follows: (1) first to the Limited Partners in an amount equal to their aggregate capital contributions; (2) then to the general partners in an amount equal to their aggregate capital contributions; (3) then, among the Limited Partners, an amount equal to $62,000,000 multiplied by the respective percentage interest of Portfolio I or Portfolio II in the Venture; and (4) finally, of the balance, 76% to the Limited Partners and 24% to the general partners.

In any event, there shall be allocated to the general partners not less than 1% of profits or losses.

Use of Estimates:

The preparation of combined 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.

Fair Value of Financial Instruments:

Statement of Financial Accounting Standards (“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 Venture 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 Venture estimates the fair value of its long term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Venture for similar term, fully amortizing long term debt. The fair value of the Venture’s first mortgages at December 31, 2005, after discounting the scheduled loan payments to maturity, is approximately $29,742,000. However, the Venture is precluded from refinancing the first mortgages until January 2007. The Managing General Partner believes that it is not appropriate to use the Venture’s incremental borrowing rate for the second mortgages, the Assignment Note and the Long Term Arrangement Fee Note, as there is no market in which the Venture could obtain similar financing. Therefore, the Managing General Partner considers estimation of fair value to be impracticable for this indebtedness.

D-14

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

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. At December 31, 2005 and 2004, cash balances included approximately $814,000 and $554,000, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.

Tenant Security Deposits:

The Venture requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged the space, and is current on rental payments.

Investment Properties:

Investment properties consists of eight apartment complexes and are stated at cost. The Venture capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs associated with redevelopment projects are capitalized in accordance with SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties.” Costs incurred in connection with capital projects are capitalized where the costs of the project exceed $250. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. The Venture capitalizes interest, property taxes and operating costs in accordance with SFAS No. 34 “Capitalization of Interest Costs” during periods in which redevelopment and construction projects are in progress. The Venture did not capitalize any costs related to interest, property taxes or operating costs during the years ended December 31, 2005, 2004 and 2003. Capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Venture records impairment losses on long-lived assets used in operations when events and circumstances indicate 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. No adjustments for impairment of value were necessary for the years ending December 31, 2005, 2004 and 2003.

Escrows:

In connection with the December 1997 refinancing of the Venture’s properties, a replacement escrow was required for each property. Each property was required to deposit an initial lump sum amount in addition to making monthly deposits over the term of the loan, which vary by property. These funds are to be used to cover replacement costs. The balance of the replacement reserves at December 31, 2005 and 2004 is approximately $119,000 and $827,000, respectively, including interest.

Depreciation:

Depreciation is computed by the straight-line method over estimated useful lives ranging from 25 to 30 years for buildings and improvements and five to fifteen years for personal property.

Leases:

The Venture generally leases apartment units for twelve-month terms or less. The Venture will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the

D-15

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

term of the lease. The Venture evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Deferred Costs:

Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses.

Advertising Costs:

The Venture expenses the cost of advertising as incurred. Advertising costs of approximately $242,000, $231,000 and $197,000 are included in operating expense for the years ended December 31, 2005, 2004, and 2003, respectively.

Segment Reporting:

SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” established standards for the manner in which 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. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Venture has only one reportable segment.

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans were refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $34,994,000 which was less than the $57,846,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $22,852,000, which is the difference between the note face amounts and the agreed valuation amounts.

Income Taxes:

Taxable income or loss of the Venture is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Venture.

Recent Accounting Pronouncement:

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154 “Accounting Changes and Error Corrections”, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS No. 154 was issued. The Venture does not anticipate that the adoption of SFAS No. 154 will have a material effect on the Venture’s combined financial condition or results of operations.

D-16

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note C — Mortgage Notes Payable

	Principal		Principal					Principal
	Balance at		Balance at					Balance
	December 31,		December 31,		Period			Due at
Property	2005		2004		Amortized			Maturity
	(In thousands)							(In thousands)
North Park Apartments
1st mortgage	$	5,642	$	5,750		25 yrs		$	5,376
2nd mortgage		2,718		2,446		(A	)		(A	)
Chapelle Le Grande
1st mortgage		2,896		2,955		25 yrs			2,759
2nd mortgage		1,289		1,205		(A	)		(A	)
Terrace Gardens
1st mortgage		4,006		4,083		25 yrs			3,818
2nd mortgage		1,498		1,421		(A	)		(A	)
Forest Ridge Apartments
1st mortgage		5,323		5,434		25 yrs			5,073
2nd mortgage		490		566		(A	)		(A	)
The Bluffs
1st mortgage		3,360		3,429		25 yrs			3,202
2nd mortgage		1,442		1,349		(A	)		(A	)
Watergate Apartments
1st mortgage		2,611		2,665		25 yrs			2,492
2nd mortgage		885		840		(A	)		(A	)
Shadowood Apartments
1st mortgage		2,032		2,074		25 yrs			1,936
2nd mortgage		41		88		(A	)		(A	)
Vista Village Apartments
1st mortgage		2,997		3,059		25 yrs			2,856
2nd mortgage		1,337		1,215		(A	)		(A	)
Totals	$	38,567	$	38,579				$	27,512

(A) Payments are based on excess monthly cash flow with any unpaid balance due at maturity. Excess monthly cash flow is defined as revenue generated from the operation of a property less: (1) operating expenses of the property; (2) the debt service payment for the senior loan; (3) the tax and insurance reserve deposit; and (4) the replacement reserve deposit.

Interest rates are 8.50% and 10.84% for the fixed rate first and second mortgages, respectively. All notes mature January 1, 2008.

The senior debt prohibits repayment prior to January 1, 2007. All of the loans are cross-collateralized, but they are not cross-defaulted; therefore, a default by one property under the terms of its debt agreement does not in and of itself create a default under all of the senior and junior debt agreements. However, if the proceeds upon the sale or refinancing of any property are insufficient to fully repay the outstanding senior or junior debt related to that property, any deficiency is to be satisfied from the sale or refinancing of the remaining properties.

D-17

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Scheduled principal payments on mortgage notes payable subsequent to December 31, 2005 are as follows (in thousands):

2006	$	657
2007		721
2008		37,189
	$	38,567

As principal payments for the junior loans are based upon monthly cash flow, all principal is assumed to be repaid at maturity.

Note D — Notes Payable

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. As a result of the 1993 bankruptcy proceedings, the Assignment Note became part of the Bankruptcy Claims (as defined in Note E below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note E below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At December 31, 2005 and 2004, the $18,481,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to AICPA Statement of Position (“SOP”) 90-7, the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

The note in the amount of $942,000 does not bear interest. As a result of the 1993 bankruptcy proceedings, the Long-Term Arrangement Fee Note became part of the Bankruptcy Claims (as defined in Note E below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note E below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

Note E — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and a third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus

D-18

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 ($3,240,000 is allocated to the Unaffiliated Sale Properties) plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”) which collectively total approximately $42,139,000 ($19,461,000 is allocated to the Unaffiliated Sale Properties) from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $7,807,000 and $7,682,000 for the years ended December 31, 2005 and 2004, respectively. The Managing General Partner reevaluated the fair value of the participation feature during the three months ended June 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $125,000 and reduced by approximately $1,082,000, respectively. At December 31, 2005 there was no change in estimated fair value of the participation feature. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the three months ended June 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the years ended December 31, 2005, 2004 and 2003, the Venture amortized approximately $1,498,000, $1,328,000 and $1,219,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at December 31, 2005 and 2004 was approximately $1,686,000 and $3,058,000, respectively.

Note F — Casualty Gains

During the twelve months ended December 31, 2005, a net casualty gain of approximately $60,000 was recorded at Chapelle Le Grande Apartments. The casualty gain related to a plumbing pipe break, occurring on June 27, 2005, which caused damage to two units at the property. The gain was the result of the receipt of insurance proceeds of approximately $66,000 offset by approximately $6,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2005, an estimated net casualty gain of approximately $229,000 was recorded at Watergate Apartments. The casualty gain related to a fire caused by a tenant burning candles, occurring on May 27, 2005, which caused damage to eight units at the property. The gain was the result of the receipt of insurance proceeds of approximately $250,000 offset by approximately $21,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2004, a net casualty gain of approximately $45,000 was recorded at Terrace Gardens Apartments. The casualty gain related to a winter ice storm, occurring in February 2004, which caused damage to 32 units at the property. The gain was the result of the receipt of

D-19

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

insurance proceeds of approximately $74,000 offset by approximately $8,000 of undepreciated property improvements and replacements being written off and approximately $21,000 of emergency repairs made at the property.

In September 2002 a fire at Shadowood Apartments caused damage to eight units at the property. A net casualty gain of approximately $65,000 was recorded in relation to this fire during the twelve months ended December 31, 2003. The gain was the result of the receipt of insurance proceeds of approximately $78,000 offset by approximately $13,000 of undepreciated property improvements and replacements being written off.

Note G — Transactions With Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000 ($143,000 is allocated to the Unaffiliated Sale Properties) adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum ($48,000 is allocated to the Unaffiliated Sale Properties).

Asset management fees of approximately $167,000, $154,000 and $155,000 were charged by affiliates of the Managing General Partner for the years ended December 31, 2005, 2004 and 2003, respectively. These fees are included in general and administrative expenses. At December 31, 2005, approximately $140,000 of such fees were owed and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid to such affiliates approximately $419,000, $394,000 and $397,000 for the years ended December 31, 2005, 2004 and 2003, respectively, which are included in property management fee expense. At December 31, 2005, approximately $3,000 of such fees were owed and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $48,000 for each of the years ended December 31, 2005, 2004 and 2003. These expenses are included in general and administrative expense.

During the years ended December 31, 2005, 2004 and 2003, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $67,000, $51,000 and $22,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $49,000 for each of the years ended December 31, 2005, 2004, and 2003. These expenses are included in operating expense.

At December 31, 2005 and December 31, 2004, the Venture owed loans of approximately $2,735,000 and $1,546,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $332,000 and $268,000, respectively, which are included in due to affiliates on the combined balance sheets. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (10.25% at December 31, 2005). The Venture recognized interest expense of approximately $242,000, $108,000 and $80,000 during the years ended December 31, 2005, 2004 and 2003, respectively. During the year ended December 31, 2005, the Venture paid approximately $778,000 of principal and approximately $174,000 of accrued interest on loans owed to an affiliate of the Managing General Partner. No amounts were paid during the year ended December 31, 2004 and 2003.

D-20

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At December 31, 2005 and 2004, the outstanding balance of approximately $38,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the limited partners receiving distributions equal to, at a minimum, their aggregate capital contributions. The Managing General Partner does not anticipate that any of the various fees will be owed upon disposition of the properties, as the specified distributions to the limited partners will not be fully met. There were no property dispositions for which proceeds were received during either of the nine month periods ended September 30, 2006 or 2005.

The junior debt of approximately $9,700,000 and $9,130,000 at December 31, 2005 and 2004, respectively, is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the years ended December 31, 2005, 2004 and 2003, the Venture recognized interest expense of approximately $1,040,000, $984,000, and $941,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2005, 2004 and 2003, the Venture was charged by AIMCO and its affiliates approximately $183,000, $169,000 and $177,000, respectively, for insurance coverage and fees associated with policy claims administration.

As a result of tender offers, AIMCO and its affiliates owned 119 units of limited partnership interest in Portfolio I representing 18.48% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 20.48% at December 31, 2005. AIMCO and its affiliates owned 67.42 units of limited partnership interest in Portfolio II representing 25.25% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 27.25% at December 31, 2005. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 22.47% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of limited partnership interest in the Venture in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Under the Venture Agreements, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Venture Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Venture, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Venture and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

D-21

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note H — Investment Properties and Accumulated Depreciation

	Initial Cost
					Buildings and		Costs Capitalized		Provision to
					Related Personal		Subsequent to		Reduce to
Description	Encumbrances		Land		Property		Acquisition		Fair Value
					(In thousands)
North Park Apartments	$	8,360	$	557	$	8,349	$	3,257	$	—
Chapelle Le Grande		4,185		166		3,873		1,371		—
Terrace Garden		5,504		433		4,517		2,440		—
Forest Ridge Apartments		5,813		700		6,930		2,807		—
The Bluffs		4,802		193		3,667		1,126		—
Watergate Apartments		3,496		263		5,625		2,353		—
Shadowood Apartments		2,073		209		3,393		1,324		—
Vista Village Apartments		4,334		568		5,209		2,232		—
TOTAL	$	38,567	$	3,089	$	41,563	$	16,910	$	—

	Gross Amount at Which Carried at December 31, 2005
			Buildings
			and Related
			Personal				Accumulated		Year of		Date of		Depreciable
Description	Land		Property		Total		Depreciation		Construction		Acquisition		Life
	(In thousands)
North Park Apartments	$	557	$	11,606	$	12,163	$	9,139		1968		11/14/84		5-30 yrs
Chapelle Le Grande		166		5,244		5,410		4,182		1972		12/05/84		5-30 yrs
Terrace Gardens		433		6,957		7,390		5,339		1973		10/26/84		5-30 yrs
Forest Ridge Apartments		700		9,737		10,437		7,917		1974		10/26/84		5-30 yrs
The Bluffs		193		4,793		4,986		4,030		1968		10/26/84		5-30 yrs
Watergate Apartments		263		7,978		8,241		6,268		1972		10/26/84		5-30 yrs
Shadowood Apartments		209		4,717		4,926		3,892		1974		11/14/84		5-30 yrs
Vista Village Apartments		568		7,441		8,009		6,011		1971		10/26/84		5-30 yrs
TOTAL	$	3,089	$	58,473	$	61,562	$	46,778

D-22

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Reconciliation of Investment Properties and Accumulated Depreciation (in thousands):

	2005			2004			2003
Investment Properties
Balance at beginning of year	$	59,565		$	58,091		$	57,303
Property improvements and replacements		2,171			1,508			838
Dispositions of property		(174	)		(34	)		(50	)
Balance at end of year	$	61,562		$	59,565		$	58,091
Accumulated Depreciation
Balance at beginning of year	$	44,156		$	41,624		$	39,138
Additions charged to expense		2,768			2,559			2,522
Dispositions of property		(146	)		(27	)		(36	)
Balance at end of year	$	46,778		$	44,156		$	41,624

Note I — Subscription Notes And Accrued Interest Receivable

The following information is not allocated to the Unaffiliated Sale Properties as there is no practical way to allocate this information and an allocation would not provide meaningful information, but is presented on a combined basis as presented in the Venture’s Form 10-K for the year ended December 31, 2005.

Portfolio I and Portfolio II executed promissory notes requiring cash contributions from the partners aggregating $136,800,000 to the capital of Portfolios I and II for 644 and 267 units, respectively. Of this amount, approximately $135,060,000 was contributed in cash through December 31, 2005, and $910,000 was deemed uncollectible and written-off prior to December 31, 2005. The following table represents the remaining Limited Partners’ subscription notes principal balances and the related accrued interest receivable at December 31, 2005 (in thousands):

	Portfolio I			Portfolio II
Subscription notes receivable	$	502		$	328
Accrued interest receivable		63			67
Allowance for uncollectible interest receivable		(63	)		(67	)
Total subscription notes and accrued interest receivable	$	502		$	328

All amounts outstanding at December 31, 2005, are considered past due and bear interest at the default rate of 18%. No interest will be recognized until collection is assured. The balances have been appropriately included as an increase in Partners’ Deficit.

Note J — Income Taxes

The following information is not allocated to the Unaffiliated Sale Properties as there is no practical way to allocate this information and an allocation would not provide meaningful information, but is presented on a combined basis as presented in the Venture’s Form 10-K for the year ended December 31, 2005.

D-23

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The following is a reconciliation of reported net loss per the financial statements to the Federal taxable income to partners (in thousands except per unit amounts):

	2005			2004			2003
Net loss as reported	$	(9,455	)	$	(9,202	)	$	(7,134	)
Depreciation differences		3,678			4,368			4,120
Unearned income		(39	)		(62	)		14
Casualty loss		(564	)		(45	)		(124	)
Residual proceeds expense		6,240			5,533			5,079
Other		(114	)		33			645
Federal taxable (loss) income	$	(254	)	$	625		$	2,600
Portfolio I Allocation	$	(180	)	$	441		$	1,836
Portfolio II Allocation		(74	)		184			764
Net income per limited partnership interest:
Portfolio I Allocation	$	5,305		$	2,772		$	4,147
Portfolio II Allocation		5,352			2,797			4,183

The following is a reconciliation between the Venture’s reported amounts and Federal tax basis of net liabilities at December 31, 2005 and 2004 (in thousands):

	2005			2004
Net liabilities as reported	$	(191,318	)	$	(181,863	)
Land and buildings		16,716			16,808
Accumulated depreciation		(31,369	)		(34,738	)
Syndication costs		17,650			17,650
Deferred gain		42,225			42,225
Other deferred costs		9,601			9,601
Other		(52,531	)		(52,213	)
Notes payable		4,882			4,882
Subscription notes receivable		1,837			1,837
Mortgage payable		(47,727	)		(47,727	)
Residual proceeds liability		25,505			19,265
Accrued interest		9,571			9,571
Net liabilities — Federal tax basis	$	(194,958	)	$	(194, 702	)

Note K — Contingencies

AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that

D-24

VMS NATIONAL PROPERTIES JOINT VENTURE
UNAFFILIATED SALE PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

they worked in excess of 40 hours in a week. In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues and the plaintiffs have responded. Because the court denied plaintiffs’ motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court. The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

D-25

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED BALANCE SHEET

	September 30,
	2006
	(In thousands)
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	1,230
Receivables and deposits		1,647
Restricted escrows		124
Other assets		768
Investment properties:
Land		10,315
Buildings and related personal property		105,479
		115,794
Less accumulated depreciation		(83,783	)
		32,011
	$	35,780
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	635
Tenant security deposit liabilities		743
Accrued property taxes		291
Other liabilities		425
Accrued interest		375
Due to affiliates (Note D)		9,134
Mortgage notes payable, including $11,894 due to an affiliate at September 30, 2006 (Note D)		79,710
Mortgage participation liability (Note C)		30,204
Notes payable (Note B)		22,637
Deferred gain on extinguishment of debt (Note B)		19,373
Partners’ Deficit		(127,747	)
	$	35,780

See Accompanying Notes to Combined Financial Statements

D-26

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF OPERATIONS

	Nine Months Ended
	September 30,
	2006			2005
	(In thousands, except per interest data) (Unaudited)
Revenues:
Rental income	$	16,634		$	15,145
Other income		1,256			1,042
Casualty gains (Note E)		10			276
Total revenues		17,900			16,463
Expenses:
Operating		5,952			5,671
Property management fee to an affiliate		702			629
General and administrative		245			278
Depreciation		3,747			3,595
Interest		16,932			9,485
Property taxes		1,059			1,036
Total expenses		28,637			20,694
Net loss	$	(10,737	)	$	(4,231	)
Net loss allocated to general partners (2%)	$	(215	)	$	(85	)
Net loss allocated to limited partners (98%)		(10,522	)		(4,146	)
	$	(10,737	)	$	(4,231	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(11,550	)	$	(4,551	)
Portfolio II (267 interests issued and outstanding)	$	(11,551	)	$	(4,552	)

See Accompanying Notes to Combined Financial Statements

D-27

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2006			2005
	(In thousands) (Unaudited)
Cash flows from operating activities:
Net loss	$	(10,737	)	$	(4,231	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		3,747			3,596
Amortization of mortgage discounts		10,820			3,496
Casualty gains		(10	)		(276	)
Change in accounts:
Receivables and deposits		(250	)		(762	)
Other assets		(241	)		(283	)
Accounts payable		(171	)		250
Tenant security deposit liabilities		90			17
Accrued property taxes		291			289
Other liabilities		7			29
Accrued interest		390			836
Due to affiliate		(503	)		(227	)
Net cash provided by operating activities		3,433			2,734
Cash flows from investing activities:
Property improvements and replacements		(1,779	)		(3,538	)
Net withdrawals from restricted escrows		8			84
Net insurance proceeds		10			305
Net cash used in investing activities		(1,761	)		(3,149	)
Cash flows from financing activities:
Payments on mortgage notes payable		(2,894	)		(1,990	)
Payments on advances from an affiliate		(634	)		(1,288	)
Advances from an affiliate		1,521			3,743
Net cash (used in) provided by financing activities		(2,007	)		465
Net (decrease) increase in cash and cash equivalents		(335	)		50
Cash and cash equivalents at beginning of period		1,565			1,455
Cash and cash equivalents at end of period	$	1,230		$	1,505
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $428 and $1,046 paid to an affiliate	$	5,022		$	5,443
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable	$	610		$	619

At September 30, 2006 and December 31, 2005 accounts payable and property improvements and replacements were adjusted by approximately $201,000 and $462,000, respectively.

At September 30, 2005 and December 31, 2004 accounts payable and property improvements and replacements were adjusted by approximately $783,000 and $243,000, respectively.

See Accompanying Notes to Combined Financial Statements

D-28

VMS NATIONAL PROPERTIES JOINT VENTURE

AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note A — Basis of Presentation

The accompanying financial statements reflect the accounts of the Affiliated Contribution Properties of VMS National Properties Joint Venture (the “Venture”) and an allocation of amounts in other accounts of the Venture. The Affiliated Contribution Properties are properties that may be contributed to an affiliate of the Venture as described more fully in a Registration Statement on Form S-4 as filed with the Securities and Exchange Commission by Apartment Investment and Management Company (“AIMCO”) and AIMCO Properties, L.P. on August 22, 2006 and subsequently amended. The Affiliated Contribution Properties consist of seven apartment properties known as Casa de Monterey, Buena Vista Apartments, Crosswood Park, Mountain View Apartments, Pathfinder Village Apartments, Scotchollow Apartments and The Towers of Westchester Park.

The Venture was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement (the “Venture Agreement”) dated September 27, 1984, between VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”) (collectively, the “Ventures”). Effective December 12, 1997, the managing general partner of each of the Ventures was transferred from VMS Realty Investment, Ltd. (“VMSRIL”) (formerly VMS Realty Partners) to MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), a wholly-owned subsidiary of MAE GP Corporation (“MAE GP”) and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into AIMCO, a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States.

Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Venture Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture’s operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Venture Agreement.

The Venture maintains a separate general ledger for each of its apartment properties. The accounts in the general ledgers for the Affiliated Contribution Properties were aggregated in the preparation of these financial statements. The Venture also maintains a general ledger containing accounts used for general activities of the Venture that are not specifically associated with a particular property. These accounts consist primarily of certain notes payable and a deferred gain. Amounts in these accounts and related interest expense were allocated to the Affiliated Contribution Properties in proportion to the number of apartment units, the value of the first mortgages or the fair market value attributed to the Affiliated Contribution Properties as appropriate based upon the nature of the account. In addition, certain general and administrative amounts were allocated to the Affiliated Contribution Properties in proportion to the number of apartment units attributed to the Affiliated Contribution Properties.

These financial statements were prepared by the Venture to provide information that may be useful in evaluating the transactions described in the aforementioned Form S-4 and should be read in conjunction with the related combined financial statements of the Venture included in the Venture’s Quarterly Reports on Form 10-Q for the nine months ended September 30, 2006 and 2005 and the Venture’s Annual Report on Form 10-K for the year ended December 31, 2005. The amounts reported in these financial statements are not necessarily indicative of the amounts that would have been reported had the Affiliated Contribution Properties been operated separately from other activities of the Venture.

D-29

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note B — Deferred Gain and Notes Payable

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $75,006,000, which was less than the $94,379,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $19,373,000, which is the difference between the note face amounts and the agreed valuation amounts.

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. As a result of the 1993 bankruptcy proceedings, the Assignment Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust, which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At September 30, 2006, the $20,329,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount, which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

The note in the amount of $2,308,000 does not bear interest. As a result of the 1993 bankruptcy proceedings, the Long-Term Arrangement Fee Note became part of the Bankruptcy Claims (as defined in Note C below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note C below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

Note C — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and a third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 ($10,260,000 is allocated to the Affiliated Contribution Properties) plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership

D-30

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”), which collectively total approximately $42,139,000 ($22,678,000 is allocated to the Affiliated Contribution Properties from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $46,803,000 for the nine months ended September 30, 2006. The Managing General Partner reevaluated the fair value of the participation feature during the nine months ended September 30, 2006, the nine months ended September 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $22,080,000, increased by approximately $397,000 and reduced by approximately $3,427,000, respectively. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined either by appraisal or by using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the nine months ended September 30, 2006 is attributable to an increase in the fair value of the collateral properties. The increase in the fair value of the participation feature for the nine months ended September 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the nine months ended September 30, 2006 and 2005, the Venture amortized approximately $10,820,000 and $3,496,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at September 30, 2006 was approximately $16,599,000.

Note D — Transactions with Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000 ($157,000 is allocated to the Affiliated Contribution Properties), adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum ($52,000 is allocated to the Affiliated Contribution Properties).

Asset management fees of approximately $135,000 and $138,000 were charged by affiliates of the Managing General Partner for the nine months ended September 30, 2006 and 2005, respectively. These fees are included in general and administrative expense. At September 30, 2006, approximately $45,000 of such fees were owed and are included in due to affiliates.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid or accrued to such affiliates approximately $702,000 and $629,000 for the nine months ended September 30, 2006 and 2005, respectively, which are included in property management fee expense.

D-31

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $39,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in general and administrative expense. At September 30, 2006, approximately $13,000 of such reimbursements were owed and are included in due to affiliates.

During the nine months ended September 30, 2006 and 2005, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $65,000 and $68,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $56,000 for each of the nine month periods ended September 30, 2006 and 2005. These expenses are included in operating expense.

At September 30, 2006, the Venture owed loans of approximately $7,792,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $1,285,000, which are included in due to affiliates on the combined balance sheet. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (11.25% at September 30, 2006). The Venture recognized interest expense of approximately $682,000 and $409,000 during the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006 and 2005, the Venture paid approximately $634,000 and $1,288,000, respectively, of principal and approximately $5,000 and $709,000, respectively, of accrued interest on loans owed to an affiliate of the Managing General Partner.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At September 30, 2006, the outstanding balance of $41,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the limited partners receiving distributions equal to, at a minimum, their aggregate capital contributions. The Managing General Partner does not anticipate that any of the various fees will be owed upon disposition of the properties, as the specified distributions to the limited partners will not be fully met. There were no property dispositions for which proceeds were received during either of the nine month periods ended September 30, 2006 or 2005.

The junior debt of approximately $11,895,000 at September 30, 2006 is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the nine months ended September 30, 2006 and 2005, the Venture recognized interest expense of approximately $1,022,000 and $1,061,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the nine months ended September 30, 2006 and 2005, the Venture was charged by AIMCO and its affiliates approximately $488,000 and $265,000, respectively, for insurance coverage and fees associated with policy claims administration.

Note E — Casualty Gains

During the nine months ended September 30, 2006, an additional casualty gain of approximately $10,000 was recorded at Casa De Monterey Apartments. The casualty gain related to a fire occurring in February 2005 caused by a contractor working at the property that severely damaged six units of an eight unit apartment building. The gain

D-32

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

was the result of the receipt of additional insurance proceeds of approximately $10,000. During the year ended December 31, 2005, a casualty gain of approximately $278,000 was recorded at Casa De Monterey Apartments from this same casualty. The 2005 gain was the result of the receipt of insurance proceeds of approximately $308,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off.

Note F — Contingencies

AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”} by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues and the plaintiffs have responded. Because the court denied plaintiffs’ motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court. The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

D-33

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

D-34

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED BALANCE SHEETS

	December 31,
	2005			2004
	(In thousands)
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	1,566		$	1,455
Receivables and deposits		1,397			1,255
Restricted escrows		132			288
Other assets		526			515
Investment properties (Notes B and H):
Land		10,315			10,315
Buildings and related personal property		103,960			98,983
		114,275			109,298
Less accumulated depreciation		(80,036	)		(75,353	)
		34,239			33,945
	$	37,860		$	37,458
LIABILITIES AND PARTNERS’ DEFICIT
Liabilities
Accounts payable	$	1,067		$	465
Tenant security deposit liabilities		653			616
Other liabilities		418			381
Accrued interest		595			363
Due to affiliates (Note G)		7,674			5,521
Mortgage notes payable, including $12,974 due to an affiliate at 2005 and $12,993 at 2004 (Note C)		81,994			83,413
Mortgage participation liability (Note E)		19,384			14,641
Notes payable (Note D)		22,636			22,636
Deferred gain on extinguishment of debt (Note B)		19,373			19,373
Partners’ Deficit		(115,934	)		(109,951	)
	$	37,860		$	37,458

See Accompanying Notes to Combined Financial Statements

D-35

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF OPERATIONS

	December 31,
	2005			2004			2003
	(In thousands, except per limited partnership interest data) (Unaudited)
Revenues:
Rental income	$	20,432		$	19,071		$	19,838
Other income		1,414			1,410			1,454
Casualty gains (Note F)		275			—			100
Total revenues		22,121			20,481			21,392
Expenses:
Operating		7,667			7,114			6,780
Property management fees to an affiliate		859			807			856
General and administrative		359			284			311
Depreciation		4,846			4,587			4,462
Interest, including approximately $6,766, $5,965 and $5,662 to an affiliate		12,805			12,106			11,885
Property taxes		1,385			1,350			1,288
Total expenses		27,921			26,248			25,582
Net loss	$	(5,800	)	$	(5,767	)	$	(4,190	)
Net loss allocated to general partners (2%)	$	(116	)	$	(115	)	$	(84	)
Net loss allocated to limited partners (98%)		(5,684	)		(5,652	)		(4,106	)
	$	(5,800	)	$	(5,767	)	$	(4,190	)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding)	$	(6,239	)	$	(6,204	)	$	(4,507	)
Portfolio II (267 interests issued and outstanding)	$	(6,240	)	$	(6,204	)	$	(4,508	)

See Accompanying Notes to Combined Financial Statements

D-36

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS

	December 31,
	2005			2004			2003
	(In thousands)
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(5,800	)	$	(5,767	)	$	(4,190	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		4,846			4,587			4,462
Amortization of mortgage discounts		4,743			4,205			3,860
Casualty gains		(275	)		—			(100	)
Change in accounts:
Receivables and deposits		(142	)		6			15
Other assets		(12	)		(119	)		(145	)
Accounts payable		383			(357	)		468
Tenant security deposit liabilities		37			15			(73	)
Due to affiliates		407			264			90
Accrued interest		524			1,138			466
Other liabilities		36			(97	)		49
Net cash provided by operating activities		4,747			3,875			4,902
Cash flows from investing activities:
Property improvements and replacements		(4,955	)		(1,976	)		(1,976	)
Net withdrawals from (deposits to) restricted escrows		156			(78	)		(28	)
Insurance proceeds received		308			—			118
Net cash used in investing activities		(4,491	)		(2,054	)	$	(1,886	)
Cash flows from financing activities:
Payments on mortgage notes payable		(2,247	)		(3,541	)		(3,923	)
Payments on advances from an affiliate		(2,063	)		—			(3	)
Advances from an affiliate		4,165			2,196			—
Net cash used in financing activities		(145	)		(1,345	)		(3,926	)
Net increase (decrease) in cash and cash equivalents		111			476			(910	)
Cash and cash equivalents at beginning of year		1,455			979			1,889
Cash and cash equivalents at end of year	$	1,566		$	1,455		$	979
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $809, $188, and $1,203 paid to an affiliate	$	6,960		$	6,457		$	7,362
Supplemental disclosure of non-cash information:
Accrued interest added to mortgage notes payable	$	292		$	1,390		$	412
Property improvements and replacements included in accounts payable and other liabilities	$	462		$	243		$	278

See Accompanying Notes to Combined Financial Statements

D-37

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2005

(Unaudited)

Note A — Basis of Presentation

The accompanying financial statements reflect the accounts of the Affiliated Contribution Properties of VMS National Properties Joint Venture (the “Venture”) and an allocation of amounts in other accounts of the Venture. The Affiliated Contribution Properties are properties that may be contributed to an affiliate of the Venture as described more fully in a Registration Statement on Form S-4 as filed with the Securities and Exchange Commission by Apartment Investment and Management Company (“AIMCO”) and AIMCO Properties, L.P. on August 22, 2006 and subsequently amended. The Affiliated Contribution Properties consist of seven apartment properties known as Casa de Monterey, Buena Vista Apartments, Crosswood Park, Mountain View Apartments, Pathfinder Village Apartments, Scotchollow Apartments and The Towers of Westchester Park.

The Venture was formed as a general partnership pursuant to the Uniform Venture Act of the State of Illinois and a joint venture agreement (the “Venture Agreement”) dated September 27, 1984, between VMS National Residential Portfolio I (“Portfolio I”) and VMS National Residential Portfolio II (“Portfolio II”) (collectively, the “Ventures”). Effective December 12, 1997, the managing general partner of each of the Ventures was transferred from VMS Realty Investment, Ltd. (“VMSRIL”) (formerly VMS Realty Partners) to MAERIL, Inc. (“MAERIL” or the “Managing General Partner”), a wholly-owned subsidiary of MAE GP Corporation (“MAE GP”) and an affiliate of Insignia Financial Group, Inc. (“Insignia”). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust (“IPT”), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into AIMCO, a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States.

Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Venture Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture’s operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Venture Agreement.

The Venture maintains a separate general ledger for each of its apartment properties. The accounts in the general ledgers for the Affiliated Contribution Properties were aggregated in the preparation of these financial statements. The Venture also maintains a general ledger containing accounts used for general activities of the Venture that are not specifically associated with a particular property. These accounts consist primarily of certain notes payable and a deferred gain. Amounts in these accounts and related interest expense were allocated to the Affiliated Contribution Properties in proportion to the number of apartment units, the value of the first mortgages or the fair market value attributed to the Affiliated Contribution Properties as appropriate based upon the nature of the account. In addition, certain general and administrative amounts were allocated to the Affiliated Contribution Properties in proportion to the number of apartment units attributed to the Affiliated Contribution Properties.

These financial statements were prepared by the Venture to provide information that may be useful in evaluating the transactions described in the aforementioned Form S-4 and should be read in conjunction with the related combined financial statements and footnotes of the Venture included in the Venture’s Annual Report on Form 10-K for the year ended December 31, 2005. The amounts reported in these financial statements are not necessarily indicative of the amounts that would have been reported had the Affiliated Contribution Properties been operated separately from other activities of the Venture.

D-38

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note B — Summary of Significant Accounting Policies

Allocation of Income, Loss, and Distributions:

The operating profits and losses of VMS National Properties Joint Venture are allocated to Portfolio I and Portfolio II based on their respective ownership of VMS National Properties Joint Venture, which is 70.69% and 29.31%, respectively. Portfolio I and Portfolio II then combine their respective share of the operating profits and losses of VMS National Properties Joint Venture with their respective operating profits and losses, which is then allocated 98% to the respective limited partners and 2% to the respective general partners of both Portfolio I and Portfolio II.

Operating cash flow distributions for Portfolio I and Portfolio II will be made at the discretion of the Managing General Partner subject to the order of distribution indicated in the Venture’s Second Amended and Restated Plan of Reorganization (the “Plan”) as approved by the US Bankruptcy Court in September 1993. Such distributions will be allocated first to the respective Limited Partners in an amount equal to 12% per year (on a noncumulative basis) of their contributed capital; then, to the general partners, a subordinated incentive fee equal to 10.45% of remaining operating cash flow; and finally, of the balance to be distributed, 98% to the Limited Partners and 2% to the general partners.

Distributions of proceeds arising from the sale or refinancing of the Venture’s properties will be allocated to Portfolio I and Portfolio II in proportion to their respective Venture interests subject to the order of distribution indicated in the Plan. Distributions by Portfolio I and Portfolio II will then be allocated as follows: (1) first to the Limited Partners in an amount equal to their aggregate capital contributions; (2) then to the general partners in an amount equal to their aggregate capital contributions; (3) then, among the Limited Partners, an amount equal to $62,000,000 multiplied by the respective percentage interest of Portfolio I or Portfolio II in the Venture; and (4) finally, of the balance, 76% to the Limited Partners and 24% to the general partners.

In any event, there shall be allocated to the general partners not less than 1% of profits or losses.

Use of Estimates:

The preparation of combined 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.

Fair Value of Financial Instruments:

Statement of Financial Accounting Standards (“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 Venture 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 Venture estimates the fair value of its long term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Venture for similar term, fully amortizing long term debt. The fair value of the Venture’s first mortgages at December 31, 2005, after discounting the scheduled loan payments to maturity, is approximately $71,068,000. However, the Venture is precluded from refinancing the first mortgages until January 2007. The Managing General Partner believes that it is not appropriate to use the Venture’s incremental borrowing rate for the second mortgages, the Assignment Note and the Long Term Arrangement Fee Note, as there is no market in which the Venture could obtain similar financing. Therefore, the Managing General Partner considers estimation of fair value to be impracticable for this indebtedness.

D-39

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

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. At December 31, 2005 and 2004, cash balances included approximately $1,473,000 and $1,354,000, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.

Tenant Security Deposits:

The Venture requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged the space, and is current on rental payments.

Investment Properties:

Investment properties consists of seven apartment complexes and are stated at cost. The Venture capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs associated with redevelopment projects are capitalized in accordance with SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties.” Costs incurred in connection with capital projects are capitalized where the costs of the project exceed $250. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. The Venture capitalizes interest, property taxes and operating costs in accordance with SFAS No. 34 “Capitalization of Interest Costs” during periods in which redevelopment and construction projects are in progress. The Venture did not capitalize any costs related to interest, property taxes or operating costs during the years ended December 31, 2005, 2004 and 2003. Capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Venture records impairment losses on long-lived assets used in operations when events and circumstances indicate 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. No adjustments for impairment of value were necessary for the years ending December 31, 2005, 2004 and 2003.

Escrows:

In connection with the December 1997 refinancing of the Venture’s properties, a replacement escrow was required for each property. Each property was required to deposit an initial lump sum amount in addition to making monthly deposits over the term of the loan, which vary by property. These funds are to be used to cover replacement costs. The balance of the replacement reserves at December 31, 2005 and 2004 is approximately $132,000 and $288,000, respectively, including interest.

Depreciation:

Depreciation is computed by the straight-line method over estimated useful lives ranging from 25 to 30 years for buildings and improvements and five to fifteen years for personal property.

Leases:

The Venture generally leases apartment units for twelve-month terms or less. The Venture will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the

D-40

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

term of the lease. The Venture evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Deferred Costs:

Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses.

Advertising Costs:

The Venture expenses the cost of advertising as incurred. Advertising costs of approximately $349,000, $321,000 and $274,000 are included in operating expense for the years ended December 31, 2005, 2004, and 2003, respectively.

Segment Reporting:

SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” established standards for the manner in which 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. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Venture has only one reportable segment.

Deferred Gain on Extinguishment of Debt:

When the senior and junior loans were refinanced in 1997, the senior loans were recorded at the agreed valuation amount of $75,006,000, which was less than the $94,379,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $19,373,000, which is the difference between the note face amounts and the agreed valuation amounts.

Income Taxes:

Taxable income or loss of the Venture is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Venture.

Recent Accounting Pronouncement:

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154 “Accounting Changes and Error Corrections”, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS No. 154 was issued. The Venture does not anticipate that the adoption of SFAS No. 154 will have a material effect on the Venture’s combined financial condition or results of operations.

D-41

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note C — Mortgage Notes Payable

	Principal		Principal					Principal
	Balance at		Balance at					Balance
	December 31,		December 31,		Period			Due at
Property	2005		2004		Amortized			Maturity
	(In thousands)							(In thousands)
Scotchollow
1st mortgage		26,291		26,834		25 yrs			25,054
2nd mortgage		9,397		8, 861		(A	)		(A	)
Pathfinder Village
1st mortgage		12,148		12,380		25 yrs			11,576
2nd mortgage		3, 037		2,816		(A	)		(A	)
Buena Vista Apartments
1st mortgage		4,470		4,562		25 yrs			4,260
2nd mortgage(B)		—		62		(A	)		(A	)
Mountain View Apartments
1st mortgage		6,458		6,592		25 yrs			6,154
Crosswood Park
1st mortgage		5, 024		5,120		25 yrs			4,788
2nd mortgage		232		299		(A	)		(A	)
Casa de Monterey
1st mortgage		3,695		3,772		25 yrs			3,479
2nd mortgage		115		268		(A	)		(A	)
Towers of Westchester Park
1st mortgage		10,934		11,160		25 yrs			10,420
2nd mortgage		193		687		(A	)		(A	)
Totals	$	81,994	$	83,413				$	65,731

(A) Payments are based on excess monthly cash flow with any unpaid balance due at maturity. Excess monthly cash flow is defined as revenue generated from the operation of a property less: (1) operating expenses of the property; (2) the debt service payment for the senior loan; (3) the tax and insurance reserve deposit; and (4) the replacement reserve deposit.

(B) Second mortgage loan was satisfied in 2005.

Interest rates are 8.50% and 10.84% for the fixed rate first and second mortgages, respectively. All notes mature January 1, 2008.

The senior debt prohibits repayment prior to January 1, 2007. All of the loans are cross-collateralized, but they are not cross-defaulted; therefore, a default by one property under the terms of its debt agreement does not in and of itself create a default under all of the senior and junior debt agreements. However, if the proceeds upon the sale or refinancing of any property are insufficient to fully repay the outstanding senior or junior debt related to that property, any deficiency is to be satisfied from the sale or refinancing of the remaining properties.

D-42

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Scheduled principal payments on mortgage notes payable subsequent to December 31, 2005 are as follows (in thousands):

2006	$	1,532
2007		1,682
2008		78,780
	$	81,994

As principal payments for the junior loans are based upon monthly cash flow, all principal is assumed to be repaid at maturity.

Note D — Notes Payable

Assignment Note:

The Venture executed a purchase money subordinated note (the “Assignment Note”) payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. As a result of the 1993 bankruptcy proceedings, the Assignment Note became part of the Bankruptcy Claims (as defined in Note E below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note E below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates.

At December 31, 2005 and 2004, the $20,329,000 Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to AICPA Statement of Position (“SOP”) 90-7, the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense was being recognized through the amortization of the discount which became fully amortized in January 2000.

Long-Term Loan Arrangement Fee Note:

The Venture executed an unsecured, nonrecourse promissory note (the “Long-Term Loan Arrangement Fee Note”) payable to the VMS/Stout Venture as consideration for arranging long-term financing.

The note in the amount of $2,307,000 does not bear interest. As a result of the 1993 bankruptcy proceedings, the Long-Term Arrangement Fee Note became part of the Bankruptcy Claims (as defined in Note E below), and is payable after repayment of the senior and junior loans. As more fully discussed in Note E below, a significant interest in the Class 3-C bankruptcy claims was later purchased by an affiliate of the Managing General Partner.

Note E — Participating Mortgage Note

AIMCO Properties, L.P., which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the junior debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, L.P. and a third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture’s investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the senior and junior debt, plus

D-43

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 ($10,260,000 is allocated to the Affiliated Contribution Properties) plus accrued interest at 10% compounded monthly (the “Partnership Advance Account”) from the proceeds. Interest began accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the “50/50 Split”) between the Venture and AIMCO Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the “Bankruptcy Claims”) which collectively total approximately $42,139,000 ($22,678,000 is allocated to the Affiliated Contribution Properties) from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, L.P.

The Venture has recorded the estimated fair value of the participation feature as a mortgage participation liability of approximately $24,724,000 and $24,327,000 for the years ended December 31, 2005 and 2004, respectively. The Managing General Partner reevaluated the fair value of the participation feature during the three months ended June 30, 2005 and the year ended December 31, 2004 and concluded that the fair value of the participation feature should be increased by approximately $397,000 and reduced by approximately $3,427,000, respectively. At December 31, 2005 there was no change in estimated fair value of the participation feature. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The increase in the fair value of the participation feature for the three months ended June 30, 2005 is attributable to a modification of the calculation of the residual value with respect to whether the various liabilities are to be paid before or after the 50/50 split partially offset by a further increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity. The reduction in the fair value of the participation feature as of December 31, 2004 is attributable to an increase in the estimated value of the junior loans and advances from the Managing General Partner that will be due at maturity partially offset by an increase in the estimated fair value of the collateral properties. During the years ended December 31, 2005, 2004 and 2003, the Venture amortized approximately $4,742,000, $4,205,000 and $3,860,000, respectively, of the mortgage participation debt discount which is included in interest expense. The related mortgage participation debt discount at December 31, 2005 and 2004 was approximately $5,340,000 and $9,686,000, respectively.

Note F — Casualty Gains

During the twelve months ended December 31, 2005, an estimated net casualty loss of approximately $3,000 was recorded at Scotchollow Apartments. The casualty loss related to an earthquake occurring on November 29, 2005, which caused damage to two units at the property. The loss was the result of approximately $3,000 of undepreciated property improvements and replacements being written off.

During the twelve months ended December 31, 2005, a net casualty gain of approximately $278,000 was recorded at Casa De Monterey Apartments. The casualty gain related to a fire occurring in February 2005 caused by a contractor working at the property that severely damaged six units of an eight unit apartment building. The gain was the result of the receipt of insurance proceeds of approximately $308,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off.

In February 2003, a fire at Pathfinder Village Apartments caused damage to five units at the property. A net casualty gain of approximately $99,000 was recorded in relation to this fire during the twelve months ended December 31, 2003. The gain was a result of the receipt of insurance proceeds of approximately $118,000 offset by approximately $19,000 of undepreciated property improvements and replacements being written off.

D-44

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Note G — Transactions With Affiliated Parties

The Venture has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Venture activities. The Revised and Amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture’s retained properties for an annual compensation of $300,000 ($157,000 is allocated to the Affiliated Contribution Properties) adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum ($52,000 is allocated to the Affiliated Contribution Properties).

Asset management fees of approximately $184,000, $169,000 and $170,000 were charged by affiliates of the Managing General Partner for the years ended December 31, 2005, 2004 and 2003, respectively. These fees are included in general and administrative expenses. At December 31, 2005, approximately $154,000 of such fees were owed and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner receive a percentage of the gross receipts from all of the Venture’s properties as compensation for providing property management services. The Venture paid to such affiliates approximately $859,000, $807,000 and $856,000 for the years ended December 31, 2005, 2004 and 2003, respectively, which are included in property management fee expense. At December 31, 2005, approximately $8,000 of such fees were owed and are included in due to affiliates. No amounts were owed at December 31, 2004.

Affiliates of the Managing General Partner charged the Venture reimbursement of accountable administrative expenses amounting to approximately $52,000 for each of the years ended December 31, 2005, 2004 and 2003. These expenses are included in general and administrative expense.

During the years ended December 31, 2005, 2004 and 2003, the Venture was charged fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $107,000, $118,000 and $108,000, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties and are included in investment properties.

An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $74,000 for each of the years ended December 31, 2005, 2004, and 2003. These expenses are included in operating expense.

At December 31, 2005 and December 31, 2004, the Venture owed loans of approximately $6,904,000 and $4,802,000 to an affiliate of the Managing General Partner plus accrued interest thereon of approximately $607,000 and $719,000, respectively, which are included in due to affiliates on the combined balance sheets. These loans were made in accordance with the Joint Venture Agreement and accrue interest at the prime rate plus 3% (10.25% at December 31, 2005). The Venture recognized interest expense of approximately $606,000, $299,000 and $208,000 during the years ended December 31, 2005, 2004 and 2003, respectively. During the year ended December 31, 2005, the Venture paid approximately $2,063,000 of principal and approximately $721,000 of accrued interest on loans owed to an affiliate of the Managing General Partner. No amounts were paid during the year ended December 31, 2004. During the year ended December 31, 2003, the Venture paid approximately $3,000 of principal payments only on loans owed to an affiliate of the Managing General Partner.

Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At December 31, 2005 and 2004, the outstanding balance of approximately $41,000 is included in other liabilities.

Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the limited partners receiving distributions equal to, at a minimum, their aggregate capital contributions. The Managing General Partner does not anticipate that any of the various fees will be owed upon disposition of the

D-45

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

properties, as the specified distributions to the limited partners will not be fully met. There were no property dispositions for which proceeds were received during the years ended December 31, 2005, 2004, and 2003.

The junior debt of approximately $12,974,000 and $12,993,000 at December 31, 2005 and 2004, respectively, is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the years ended December 31, 2005, 2004 and 2003, the Venture recognized interest expense of approximately $1,414,000, $1,459,000, and $1,593,000, respectively.

The Venture insures 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, general liability and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2005, 2004 and 2003, the Venture was charged by AIMCO and its affiliates approximately $274,000, $253,000 and $297,000, respectively, for insurance coverage and fees associated with policy claims administration.

As a result of tender offers, AIMCO and its affiliates owned 119 units of limited partnership interest in Portfolio I representing 18.48% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 20.48% at December 31, 2005. AIMCO and its affiliates owned 67.42 units of limited partnership interest in Portfolio II representing 25.25% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 27.25% at December 31, 2005. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 22.47% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional units of limited partnership interest in the Venture in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Under the Venture Agreements, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Venture Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Venture, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Venture and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Note H — Investment Properties and Accumulated Depreciation

	Initial Cost
					Buildings and		Costs Capitalized		Provision to
					Related Personal		Subsequent to		Reduce to
Description	Encumbrances		Land		Property		Acquisition		Fair Value
	(In thousands)				(In thousands)		(In thousands)
Scotchollow	$	35,688	$	3,510	$	19,344	$	10,107		—
Pathfinder Village		15,185		3,040		11,698		6,695		(1,250	)
Buena Vista Apartments		4,470		893		4,538		1,332		—
Mountain View Apartments		6,458		1,289		8,490		2,746		—
Crosswood Park		5,256		611		8,597		4,853		(2,000	)
Casa De Monterey		3,810		869		6,136		2,685		—
Towers Of Westchester Park		11,127		529		13,491		6,072		—
TOTAL	$	81,994	$	10,741	$	72,294	$	34,490	$	(3,250	)

D-46

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

	Gross Amount at Which Carried at December 31, 2005
			Buildings
			and Related
			Personal				Accumulated		Year of		Date of		Depreciable
Description	Land		Property		Total		Depreciation		Construction		Acquisition		Life
	(In thousands)
Scotchollow	$	3,510	$	29,451	$	32,961		23,388		1973		10/26/84		5-30 yrs
Pathfinder Village		2,753		17,430		20,183		13,571		1971		10/26/84		5-30 yrs
Buena Vista Apartments		893		5,870		6,763		4,785		1972		10/26/84		5-30 yrs
Mountain View Apartments		1,289		11,236		12,525		8,109		1978		10/26/84		5-30 yrs
Crosswood Park		472		11,589		12,061		7,817		1977		12/05/84		5-30 yrs
Casa De Monterey		869		8,821		9,690		6,868		1970		10/26/84		5-30 yrs
Towers Of Westchester Park		529		19,563		20,092		15,498		1971		10/26/84		5-30 yrs
TOTAL	$	10,315	$	103,960	$	114,275	$	80,036

Reconciliation of Investment Properties and Accumulated Depreciation (in thousands):

	2005			2004			2003
Investment Properties
Balance at beginning of year	$	109,298		$	107,357		$	105,175
Property improvements and replacements		5,173			1,942			2,253
Dispositions of property		(195	)		(1	)		(71	)
Balance at end of year	$	114,275		$	109,298		$	107,357
Accumulated Depreciation
Balance at beginning of year	$	75,353		$	70,766		$	66,357
Additions charged to expense		4,846			4,587			4,462
Dispositions of property		(163	)		—			(53	)
Balance at end of year	$	80,036		$	75,353		$	70,766

Note I — Subscription Notes And Accrued Interest Receivable

The following information is not allocated to the Affiliated Contribution Properties as there is no practical way to allocate this information and an allocation would not provide meaningful information, but is presented on a combined basis as presented in the Venture’s Form 10-K for the year ended December 31, 2005.

Portfolio I and Portfolio II executed promissory notes requiring cash contributions from the partners aggregating $136,800,000 to the capital of Portfolios I and II for 644 and 267 units, respectively. Of this amount, approximately $135,060,000 was contributed in cash through December 31, 2005, and $910,000 was deemed uncollectible and written-off prior to December 31, 2005. The following table represents the remaining Limited

D-47

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Partners’ subscription notes principal balances and the related accrued interest receivable at December 31, 2005 (in thousands):

	Portfolio I			Portfolio II
Subscription notes receivable	$	502		$	328
Accrued interest receivable		63			67
Allowance for uncollectible interest receivable		(63	)		(67	)
Total subscription notes and accrued interest receivable	$	502		$	328

All amounts outstanding at December 31, 2005, are considered past due and bear interest at the default rate of 18%. No interest will be recognized until collection is assured. The balances have been appropriately included as an increase in Partners’ Deficit.

Note J — Income Taxes

The following information is not allocated to the Affiliated Contribution Properties as there is no practical way to allocate this information and an allocation would not provide meaningful information, but is presented on a combined basis as presented in the Venture’s Form 10-K for the year ended December 31, 2005.

The following is a reconciliation of reported net loss per the financial statements to the Federal taxable income to partners (in thousands except per unit amounts):

	2005			2004			2003
Net loss as reported	$	(9,455	)	$	(9,202	)	$	(7,134	)
Depreciation differences		3,678			4,368			4,120
Unearned income		(39	)		(62	)		14
Casualty loss		(564	)		(45	)		(124	)
Residual proceeds expense		6,240			5,533			5,079
Other		(114	)		33			645
Federal taxable (loss) income	$	(254	)	$	625		$	2,600
Portfolio I Allocation	$	(180	)	$	441		$	1,836
Portfolio II Allocation		(74	)		184			764
Net income per limited partnership interest:
Portfolio I Allocation	$	5,305		$	2,772		$	4,147
Portfolio II Allocation		5,352			2,797			4,183

D-48

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The following is a reconciliation between the Venture’s reported amounts and Federal tax basis of net liabilities at December 31, 2005 and 2004 (in thousands):

	2005			2004
Net liabilities as reported	$	(191,318	)	$	(181,863	)
Land and buildings		16,716			16,808
Accumulated depreciation		(31,369	)		(34,738	)
Syndication costs		17,650			17,650
Deferred gain		42,225			42,225
Other deferred costs		9,601			9,601
Other		(52,531	)		(52,213	)
Notes payable		4,882			4,882
Subscription notes receivable		1,837			1,837
Mortgage payable		(47,727	)		(47,727	)
Residual proceeds liability		25,505			19,265
Accrued interest		9,571			9,571
Net liabilities — Federal tax basis	$	(194,958	)	$	(194,702	)

Note K — Contingencies

AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues and the plaintiffs have responded. Because the court denied plaintiffs’ motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court. The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Venture’s combined condition or results of operations.

The Venture is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of

D-49

VMS NATIONAL PROPERTIES JOINT VENTURE
AFFILIATED CONTRIBUTION PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Venture could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Venture is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Venture has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Venture has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Venture’s combined financial condition or results of operations.

D-50

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20.   Indemnification of Directors and Officers.

Aimco’s charter limits the liability of Aimco’s directors and officers to Aimco and its stockholders to the fullest extent permitted from time to time by Maryland law. Maryland law presently permits the liability of directors and officers to a corporation or its stockholders for money damages to be limited, except (i) to the extent that it is proved that the director or officer actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received, or (ii) to the extent that a judgment or other final adjudication adverse to the director or officer is entered in a proceeding based on a finding that the director’s or officer’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. This provision does not limit the ability of Aimco or its stockholders to obtain other relief, such as an injunction or rescission.

Aimco’s charter and bylaws require Aimco to indemnify its directors, officers and certain other parties to the fullest extent permitted from time to time by Maryland law. The Maryland General Corporation Law permits a corporation to indemnify its directors, officers and certain other parties against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service to or at the request of the corporation, unless it is established that (i) the act or omission of the indemnified party was material to the matter giving rise to the proceeding and (x) was committed in bad faith or (y) was the result of active and deliberate dishonesty, (ii) the indemnified party actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Indemnification may be made against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with the proceeding; provided, however, that if the proceeding is one by or in the right of the corporation, indemnification may not be made with respect to any proceeding in which the director or officer has been adjudged to be liable to the corporation. In addition, a director or officer may not be indemnified with respect to any proceeding charging improper personal benefit to the director or officer, whether or not involving an action in the director’s or officer’s official capacity, in which the director or officer was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard of conduct required for indemnification to be permitted. It is the position of the Securities and Exchange Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act.

Aimco has entered into agreements with certain of its officers, pursuant to which Aimco has agreed to indemnify such officers to the fullest extent permitted by applicable law.

Section 11.6 of the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (the “1997 Plan”), Section 2.8 of the Amended and Restated Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan (the “Non-Qualified Plan”), Section 2.8 of the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan (the “1996 Plan”), and Section 6.7 of the 1994 Stock Option Plan of Apartment Investment and Management Company (the “1994 Plan”) specifically provide that, to the fullest extent permitted by law, each of the members of the Board of Directors of Aimco (the “Board”), the Compensation Committee of the Board and each of the directors, officers and employees of Aimco, any Aimco subsidiary, the Aimco Operating Partnership and any subsidiary of the Aimco Operating Partnership shall be held harmless and indemnified by Aimco for any liability, loss (including amounts paid in settlement), damages or expenses (including reasonable attorneys’ fees) suffered by virtue of any determinations, acts or failures to act, or alleged acts or failures to act, in connection with the administration of the 1997 Plan, the Non-Qualified Plan, the 1996 Plan or the 1994 Plan, as the case may be, so long as such person is not determined by a final adjudication to be guilty of willful misconduct with respect to such determination, action or failure to act.

II-1

The Aimco Operating Partnership Agreement requires the Aimco Operating Partnership to indemnify its directors and officers (each an “Indemnitee”) to the fullest extent authorized by applicable law against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney’s fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Aimco Operating Partnership. Such indemnification continues after the Indemnitee ceases to be a director or officer. The right to indemnification includes the right to be paid by the Aimco Operating Partnership the expenses incurred in defending any proceeding in advance of its final disposition upon the delivery of an undertaking by or on behalf of the Indemnitee to repay all amounts advanced if a final judicial decision is rendered that such Indemnitee did not meet the standard of conduct permitting indemnification under the Aimco Operating Partnership Agreement or applicable law.

The Aimco Operating Partnership maintains insurance, at its expense, to protect against any liability or loss, regardless of whether any director or officer is entitled to indemnification under the Aimco Operating Partnership Agreement or applicable law.

VMS has no directors or officers.

Item 21.   Exhibits and Financial Statement Schedules.

(a) Exhibits.  The list of exhibits is set forth beginning on page II-6 of this Registration Statement and is incorporated herein by reference.

(b) Financial Statement Schedules.  None required.

Item 22.   Undertakings.

Each of the undersigned registrants hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

Provided, however, that paragraphs (i), (ii) and (iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-2

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.

(6) That every prospectus (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(8) To respond to requests for information that is incorporated by reference into the proxy statement-prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(9) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on January 16, 2007.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

By:  /s/  Harry G. Alcock

Name: Harry G. Alcock

Title:  Executive Vice President and Chief
Investment Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
* Terry Considine	Chairman of the Board, Chief Executive Officer and President (principal executive officer)	January 16, 2007
/s/  Thomas M. Herzog Thomas M. Herzog	Executive Vice President and Chief Financial Officer (principal financial officer)	January 16, 2007
/s/  Scott W. Fordham Scott W. Fordham	Senior Vice President and Chief Accounting Officer (principal accounting officer)	January 16, 2007
* James N. Bailey	Director	January 16, 2007
* Richard S. Ellwood	Director	January 16, 2007
* J. Landis Martin	Director	January 16, 2007
* Thomas L. Rhodes	Director	January 16, 2007
* Michael A. Stein	Director	January 16, 2007
By: /s/  Thomas M. Herzog Attorney-in-Fact		January 16, 2007

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on January 16, 2007.

AIMCO PROPERTIES, L.P.

By: AIMCO-GP, Inc., its General Partner

By:  /s/  Harry G. Alcock

Name: Harry G. Alcock

Title:  Executive Vice President and Chief
Investment Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
* Terry Considine	Chairman of the Board, Chief Executive Officer and President of the registrant’s general partner	January 16, 2007
/s/  Thomas M. Herzog Thomas M. Herzog	Executive Vice President and Chief Financial Officer of the registrant’s general partner	January 16, 2007
/s/  Scott W. Fordham Scott W. Fordham	Chief Accounting Officer of the registrant’s general partner	January 16, 2007
By: /s/  Thomas M. Herzog Attorney-in-Fact		January 16, 2007

II-5

EXHIBIT INDEX

Exhibit
No.			Exhibit Description
	2	.1*	Contribution Agreement dated August 21, 2006
	2	.2	Amendment No. 1 to Contribution Agreement, dated January 16, 2007
	3	.1	Charter (Exhibit 3.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, is incorporated herein by this reference)
	3	.2	Bylaws (Exhibit 3.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001, is incorporated herein by this reference)
	3	.3	Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 29, 1994 as amended and restated as of October 1, 1998 (Exhibit 10.8 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, is incorporated herein by this reference)
	3	.4	First Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 6, 1998 (Exhibit 10.9 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, is incorporated herein by this reference)
	3	.5	Second Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 30, 1998 (Exhibit 10.1 to Amendment No. 1 to Aimco’s Current Report on Form 8-K/A, filed February 11, 1999, is incorporated herein by this reference)
	3	.6	Third Amendment to Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 18, 1999 (Exhibit 10.12 to Aimco’s Annual Report on Form 10-K for the year ended December 31 1998, is incorporated herein by this reference)
	3	.7	Fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 25, 1999 (Exhibit 10.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999, is incorporated herein by this reference)
	3	.8	Fifth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 26, 1999 (Exhibit 10.3 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999, is incorporated herein by this reference)
	3	.9	Sixth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 26, 1999 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, is incorporated herein by this reference)
	3	.10	Seventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 27, 1999 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, is incorporated herein by this reference)
	3	.11	Eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 14, 1999 (Exhibit 10.9 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference)
	3	.12	Ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 21, 1999 (Exhibit 10.10 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated hereby by reference)
	3	.13	Tenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 21, 1999 (Exhibit 10.11 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference)
	3	.14	Eleventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of January 13, 2000 (Exhibit 10.12 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference)
	3	.15	Twelfth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 19, 2000 (Exhibit 10.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000, is incorporated herein by this reference)
	3	.16	Thirteenth Amendment to the Third and Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of August 7, 2000 (Exhibit 10.1 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2000, is incorporated herein by this reference)

II-6

Exhibit
No.			Exhibit Description
	3	.17	Fourteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 12, 2000 (Exhibit 10.1 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended September 30, 2000, is incorporated herein by this reference)
	3	.18	Fifteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 15, 2000 (Exhibit 10.2 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended September 30, 2000, is incorporated herein by this reference)
	3	.19	Sixteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 15, 2000 (Exhibit 10.3 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended September 30, 2000, is incorporated herein by this reference)
	3	.20	Seventeenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 10, 2000 (Exhibit 10.4 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended September 30, 2000, is incorporated herein by this reference)
	3	.21	Eighteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 16, 2000 (Exhibit 10.19 to Aimco’s Annual Report on Form 10-K/A for the fiscal year 2000, is incorporated herein by this reference)
	3	.22	Nineteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 28, 2001 (Exhibit 10.20 to Aimco’s Annual Report on Form 10-K/A for the fiscal year 2000, is incorporated herein by this reference)
	3	.23	Twentieth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 19, 2001 (Exhibit 10.21 to Aimco’s Annual Report on Form 10-K/A for the fiscal year 2000, is incorporated herein by this reference)
	3	.24	Twenty-first Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of May 10, 2001 (Exhibit 10.1 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.25	Twenty-second Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of June 20, 2001 (Exhibit 10.2 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.26	Twenty-third Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 20, 2001 (Exhibit 10.3 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.27	Twenty-fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of August 1, 2001 (Exhibit 10.4 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.28	Twenty-fifth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 2, 2001 (Exhibit 10.5 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.29	Twenty-sixth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 2, 2001 (Exhibit 10.6 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)

II-7

Exhibit
No.			Exhibit Description
	3	.30	Twenty-seventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 2, 2001 (Exhibit 10.7 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended June 30, 2001, is incorporated herein by this reference)
	3	.31	Twenty-eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 25, 2002 (Exhibit 10.1 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended March 31, 2002, is incorporated herein by this reference)
	3	.32	Twenty-ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 11, 2002 (Exhibit 10.2 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended March 31, 2002, is incorporated herein by this reference)
	3	.33	Thirtieth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 1, 2002 (Exhibit 10.3 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended March 31, 2002, is incorporated herein by this reference)
	3	.34	Thirty-first Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 10, 2002 (Exhibit 10.4 to the Quarterly Report on Form 10-Q of AIMCO Properties, L.P. for the quarterly period ended March 31, 2002, is incorporated herein by this reference)
	3	.35	Thirty-second Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of May 14, 2002 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, is incorporated herein by this reference)
	3	.36	Thirty-third Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 27, 2002 (Exhibit 10.34 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by this reference)
	3	.37	Thirty-fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 29, 2003 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, is incorporated herein by this reference)
	3	.38	Thirty-fifth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 30, 2003 (Exhibit 10.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, is incorporated herein by this reference)
	3	.39	Thirty-sixth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 16, 2003 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003, is incorporated herein by this reference)
	3	.40	Thirty-seventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 24, 2003 (Exhibit 10.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003, is incorporated herein by this reference)
	3	.41	Thirty-eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of January 30, 2004 (Exhibit 10.39 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2003, is incorporated herein by this reference)
	3	.42	Thirty-ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of March 17, 2004 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004, is incorporated herein by this reference)
	3	.43	Fortieth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of June 18, 2004 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, is incorporated herein by this reference)
	3	.44	Forty-first Amendment to Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 24, 2004 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated September 24, 2004, is incorporated herein by this reference)

II-8

Exhibit
No.			Exhibit Description
	3	.45	Forty-second Amendment to Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 30, 2004 (Exhibit 4.2 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated September 24, 2004, is incorporated herein by this reference)
	3	.46	Forty-third Amendment to Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of September 30, 2004 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated September 29, 2004, is incorporated herein by this reference)
	3	.47	Forty-fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 21, 2004 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated September 29,2004, is incorporated herein by this reference)
	3	.48	Forty-fifth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 18, 2005 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated February 18, 2005, is incorporated herein by this reference)
	3	.49	Forty-sixth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 28, 2005 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated February 28, 2005, is incorporated herein by this reference)
	3	.50	Forty-seventh Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of May 31, 2005 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated May 31, 2005, is incorporated herein by this reference)
	3	.51	Forty-eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. dated as of May 31, 2006 (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated June 2, 2006 in incorporated herein by this reference)
	3	.52	Forty-ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of June 29, 2006 (Exhibit 10.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated June 29, 2006, is incorporated herein by this reference)
	4	.1	Specimen certificate for Class A Common Stock (incorporated by reference from AIMCO’s Registration Statement on Form 8-A filed on July 19, 1994)
	4	.2	Specimen certificate for Partnership Common Units of AIMCO Properties, L.P. (Exhibit 4.2 to Aimco Properties, L.P.’s Form S-4 filed on June 17, 2002, as amended, SEC Registration Number 333-90590, is incorporated herein by reference)
	5	.1*	Form of opinion of Alston & Bird LLP as to the legality of the Common OP Units being registered
	5	.2*	Form of Opinion of DLA Piper Rudnick Gray Cary LLP as to the legality of the Class A Common Stock being registered
	8	.1*	Form of opinion of Alston & Bird LLP as to certain tax matters
	8	.2*	Form of opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters
	10	.1	Amended and Restated Secured Credit Agreement, dated as of November 2, 2004, by and among Aimco, AIMCO Properties, L.P., AIMCO/Bethesda Holdings, Inc., and NHP Management Company as the borrowers and Bank of America, N.A., Keybank National Association, and the Lenders listed therein (Exhibit 4.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, is incorporated herein by this reference)
	10	.2	First Amendment to Amended and Restated Secured Credit Agreement, dated as of June 16, 2005, by and among Aimco, AIMCO Properties, L.P., AIMCO/Bethesda Holdings, Inc., and NHP Management Company as the borrowers and Bank of America, N.A., Keybank National Association, and the Lenders listed therein (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated June 16, 2005, is incorporated herein by this reference)
	10	.3	Master Indemnification Agreement, dated December 3, 2001, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., XYZ Holdings LLC, and the other parties signatory thereto (Exhibit 2.3 to Aimco’s Current Report on Form 8-K, filed December 6, 2001, is incorporated herein by this reference)

II-9

Exhibit
No.			Exhibit Description
	10	.4	Tax Indemnification and Contest Agreement, dated December 3, 2001, by and among Apartment Investment and Management Company, National Partnership Investments, Corp., and XYZ Holdings LLC and the other parties signatory thereto (Exhibit 2.4 to Aimco’s Current Report on Form 8-K, filed December 6, 2001, is incorporated herein by this reference)
	10	.5	Limited Liability Company Agreement of AIMCO JV Portfolio #1, LLC dated as of December 30, 2003 by and among AIMCO BRE I, LLC, AIMCO BRE II, LLC and SRV-AJVP#1, LLC (Exhibit 10.54 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2003, is incorporated herein by this reference)
	10	.6	Employment Contract executed on July 29, 1994 by and between AIMCO Properties, L.P. and Terry Considine (Exhibit 10.44C to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by this reference)
	10	.7	Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (October 1999) (Exhibit 10.26 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by this reference)
	10	.8	Form of Restricted Stock Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.11 to Aimco’s Quarterly Report on Form 10- Q for the quarterly period ended September 30, 1997, is incorporated herein by this reference)
	10	.9	Form of Incentive Stock Option Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.42 to Aimco’s Annual Report on Form 10- K for the year ended December 31, 1998, is incorporated herein by this reference)
	10	.10	The 1996 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P., and Subsidiaries, as amended March 20, 1997 (Exhibit 10.42 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by this reference)
	21	.1	Subsidiaries of the registrants (Exhibit 21.1 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2005 is incorporated herein by reference)
	23	.1	Consent of Ernst & Young LLP, Greenville, South Carolina
	23	.2	Consent of Ernst & Young LLP, Denver, Colorado
	23	.3	Consent of Alston & Bird LLP (included in Exhibit 5.1)
	23	.4	Consent of DLA Piper Rudnick Gray Cary LLP (included in Exhibit 5.2)
	23	.5	Consent of Alston & Bird LLP (included in Exhibit 8.1)
	23	.6	Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.2)
	23	.7	Consent of KTR Valuation and Consulting Services, LLC
	23	.8	Consent of CB Richard Ellis
	24	.1*	Powers of Attorney
	99	.1*	Form of Limited Partner Notice of Objection
	99	.2	Form of Consideration Election Form

* Previously Filed

II-10

EX-99.(C)(8)

EXHIBIT (C)(8)

000629
Bluffs, The (OR)

Milwaukie, OR

				Trailing 12 Months (Actual)																																													Trailing
																																								2003			2004			2005			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		7,866			88,713			91,003			90,193			94,073			89,753			83,973			84,613			85,553			86,833			91,733			93,953			97,293			1,017,846			991,116			1,074,261			1,077,686			1,131,916			1,167,516			1,229,011		May 06 Mkt Rent + 5.2% growth
Less: Loss to Lease		(396	)		(4,543	)		(6,909	)		(3,814	)		(8,147	)		(2,639	)		319			423			(1,190	)		(1,101	)		(5,634	)		(8,540	)		(12,510	)		(26,922	)		(4,174	)		(60,037	)		(54,286	)		(106,738	)		(150,123	)		(144,240	)	Current Loss to Lease
Gross Potential Rent		7,470			84,170			84,094			86,379			85,926			87,114			84,292			85,036			84,363			85,732			86,099			85,413			84,783			990,924			986,942			1,014,224			1,023,400			1,025,178			1,017,393			1,084,771
Concessions		(216	)		(3,576	)		(3,550	)		(3,286	)		(2,539	)		(2,323	)		(2,206	)		(2,740	)		(2,252	)		(1,952	)		(2,068	)		(1,807	)		(1,271	)		(6,152	)		(33,568	)		(39,194	)		(29,570	)		(20,584	)		(15,250	)		(32,543	)	2% Concessions
Vacancy		(431	)		(7,224	)		(6,696	)		(7,099	)		(9,812	)		(10,265	)		(4,183	)		(3,643	)		(4,393	)		(2,162	)		(1,538	)		(153	)		(1,930	)		(70,969	)		(97,972	)		(73,816	)		(59,098	)		(14,484	)		(23,164	)		(43,391	)	5% Vacancy
Other Rent Losses		—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			(5,424	)	.5% Other/Bad Debt Loss
Bad Debt		(156	)		(1,730	)		(2,682	)		(2,669	)		(1,670	)		(1,546	)		(28	)		(2,064	)		(2,020	)		(2,001	)		(4,396	)		1,703			(2,324	)		(24,214	)		(16,294	)		(24,041	)		(21,426	)		(20,067	)		(27,887	)		—
Net Rental Income		6,666			71,640			71,167			73,326			71,904			72,979			77,875			76,589			75,698			79,616			78,097			85,157			79,258			889,589			839,109			877,174			913,306			970,044			951,092			1,003,413
Economic Occupancy		89	%		85	%		85	%		85	%		84	%		84	%		92	%		90	%		90	%		93	%		91	%		100	%		93	%		90	%		85	%		86	%		89	%		95	%		93	%		93	%
Physical Vacancy		5.8	%		8.6	%		8.0	%		8.2	%		11.4	%		11.8	%		5.0	%		4.3	%		5.2	%		2.5	%		1.8	%		0.2	%		2.3	%		7.2	%		9.9	%		7.3	%		5.8	%		1.4	%		2.3	%		4.0	%
Other Income		769			9,984			10,581			8,900			10,302			7,138			11,014			8,288			4,400			8,199			11,648			7,303			7,560			120,702			101,198			108,912			105,319			106,044			90,719			105,317		Trailing 12 Months
Gross Revenues		7,435			81,625			81,748			82,226			82,206			80,117			88,890			84,877			80,099			87,816			89,744			92,460			86,818			1,010,290			940,307			986,085			1,018,625			1,076,088			1,041,811			1,108,730
Operating Expenses
Utilities		558			6,469			5,906			6,915			7,219			6,328			5,859			5,857			5,890			7,282			6,176			7,035			5,537			69,752			77,159			78,970			76,472			74,990			66,447			76,901		Trailing 12 Months
Contract Services & Landscaping		416			3,463			3,823			3,947			3,401			3,560			3,551			3,721			4,435			5,003			6,783			7,638			7,701			40,088			40,032			42,727			57,026			88,487			92,414			42,727		CY 2005
Repairs & Maintenance		117			816			813			1,176			857			619			963			1,347			1,167			998			662			5,664			914			20,046			12,987			12,927			15,996			28,962			10,972			15,996		Trailing 12 Months
Make-Ready/Turnover		151			2,462			2,186			2,807			3,545			823			1,814			1,422			2,198			439			352			752			1,879			27,391			21,788			21,635			20,677			11,928			22,542			20,679		Trailing 12 Months
Administrative		196			1,876			1,516			2,218			3,002			3,507			2,282			2,201			2,392			1,802			1,799			1,866			2,442			38,657			29,459			26,682			26,903			24,426			29,307			27,294		Trailing 12 Months
Marketing		400			4,310			4,598			6,663			4,467			5,102			4,008			5,317			4,251			4,647			3,291			8,070			143			56,250			71,345			57,226			54,868			46,018			1,719			40,000		Estimated at $40,000
Payroll		1,177			15,168			11,650			8,680			13,170			9,994			12,023			13,834			15,048			14,213			18,365			14,135			14,957			131,981			172,275			147,701			161,238			189,827			179,481			150,681		CY 2005
Management Fees		345			3,808			3,806			3,960			3,903			3,581			3,764			3,823			4,069			4,043			4,104			4,429			3,972			46,728			42,778			45,977			47,261			50,016			47,659			33,262		3% of EGR
Real Estate Taxes		543			5,987			5,987			5,987			5,987			5,987			6,054			7,377			6,202			6,261			6,202			6,202			6,202			72,962			68,413			73,514			74,435			74,427			74,427			34,250		Estimated at $250/unit
Insurance		210			2,283			2,267			2,267			2,267			2,683			2,295			2,295			2,295			2,295			2,295			2,756			2,756			24,804			27,285			27,141			28,756			31,228			33,070			76,728		Current tax bill. Tax increases limited to 3%
Operating Expenses Per Unit		4,114			46,642			42,552			44,618			47,819			42,184			42,614			47,194			47,949			46,984			50,028			58,546			46,503			528,659			563,522			534,501			563,633			620,308			558,038			518,518
																																																		4,114			4,528			4,073			3,785
																																																		6.6	%
Net Operating Income		3,321			34,983			39,196			37,608			34,388			37,933			46,276			37,683			32,150			40,832			39,717			33,914			40,314			481,631			376,785			451,584			454,992			455,780			483,773			590,212
Reserves																																																											34,250
Free Cash Flow		3,321			34,983			39,196			37,608			34,388			37,933			46,276			37,683			32,150			40,832			39,717			33,914			40,314			481,631			376,785			451,584			454,992			455,780			483,773			555,962
																																																											6.25	%	market cap rate
Total Number of Units		137		Rent / Unit				624
Net Rentable Square Feet		105,806		Rent / Sq Ft				0.89																																																			8,895,397		Gross Price
Average Square Feet Per Unit		772		Built:				1968
Ownership		22.05	%	Tax Assessment				0
Property Number:		000629

Current Debt Info:
Original Balance			4,743,752
Current Balance			2,012,584
Interest Rate			8.5	%		Price / Unit	64,930
Amortization Term	fill					Price/Ft.	84.07
Maturity Term			39,448
Origination Date			35,827		RE Tax Explanation:
Prepay Penalty	fill
Loan Type		CONVENTIONAL
YM expiration date	fill
Due Date	fill				Other Comments:
Is Debt Prepayable? (Y/N)			—

EX-99.(C)(9)

EXHIBIT (C)(9)

000606
Chapelle Le Grande (IN)

Merrillville, IN

	Trailing 12 Months (Actual)																																																Trailing
																																								2002			2003			2004			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		9,590			84,395			84,565			84,975			85,709			85,721			85,615			85,615			81,217			80,995			82,675			82,675			82,835			942,320			961,840			1,026,250			1,006,992			992,740			994,020			995,460		May 06 Market Rent
Less: Loss to Lease		(78	)		254			(1,512	)		(1,680	)		(1,587	)		(2,587	)		(2,565	)		(1,656	)		2,174			2,439			(1,264	)		(294	)		39			(37,139	)		(41,430	)		(67,343	)		(8,239	)		(6,076	)		466			(974	)	Current Loss to Lease
Gross Potential Rent		9,512			84,649			83,053			83,295			84,122			83,134			83,050			83,959			83,391			83,434			81,411			82,382			82,874			905,181			920,410			958,907			998,753			986,664			994,486			994,486
Concessions		(677	)		(9,143	)		(7,921	)		(7,013	)		(5,959	)		(6,105	)		(5,584	)		(5,691	)		(5,307	)		(5,034	)		(4,951	)		(4,138	)		(4,201	)		(22,142	)		(30,350	)		(56,167	)		(71,046	)		(53,158	)		(50,411	)		(49,724	)	5% Concession Loss
Vacancy		(545	)		(4,880	)		(4,644	)		(624	)		(3,649	)		(1,577	)		(3,527	)		(6,343	)		(8,330	)		(7,901	)		(5,052	)		(5,455	)		(5,278	)		(53,906	)		(38,877	)		(53,372	)		(57,260	)		(63,138	)		(63,331	)		(39,779	)	4% Vacancy Loss
Other Rent Losses		—			—			—			—			—			—			—			—			—			—			—			—			—			14,701			—			—			—			—			—			(14,917	)	1.5% Other/Bad Debt Loss
Bad Debt		(151	)		212			(4,570	)		(515	)		(1,351	)		(353	)		(3,005	)		(1,411	)		(1,117	)		(1,037	)		748			(93	)		(3,381	)		(26,605	)		(23,088	)		(73,560	)		(15,873	)		(10,906	)		(40,576	)		—
Net Rental Income		8,139			70,838			65,919			75,143			73,164			75,099			70,934			70,514			68,637			69,462			72,155			72,696			70,014			817,228			828,094			775,808			854,573			859,462			840,168			890,065
Economic Occupancy		86	%		84	%		79	%		90	%		87	%		90	%		85	%		84	%		82	%		83	%		89	%		88	%		84	%		90	%		90	%		81	%		86	%		87	%		84	%		90	%
Physical Vacancy		5.7	%		5.8	%		5.6	%		0.7	%		4.3	%		1.9	%		4.2	%		7.6	%		10.0	%		9.5	%		6.2	%		6.6	%		6.4	%		6.0	%		4.2	%		5.6	%		5.7	%		6.4	%		6.4	%		4.0	%
Other Income		759			5,817			8,063			7,234			6,097			5,689			8,191			5,878			5,798			6,958			5,315			5,554			9,050			70,444			82,082			122,067			79,646			79,676			108,602			79,646		Trailing 12 Months
Gross Revenues		8,897			76,655			73,982			82,377			79,261			80,788			79,125			76,392			74,436			76,420			77,470			78,250			79,064			887,672			910,176			897,875			934,219			939,137			948,769			969,711
Operating Expenses
Utilities		1,059			9,492			6,355			6,267			6,140			6,424			7,995			9,451			10,072			12,035			12,801			14,104			10,070			83,667			113,631			117,024			111,207			147,902			120,844			111,475		Trailing 12 Months
Contract Services & Landscaping		333			1,210			4,416			3,971			4,812			3,212			4,290			650			1,959			4,401			1,131			1,506			3,370			45,655			35,610			46,128			34,930			24,023			40,435			34,930		Trailing 12 Months
Repairs & Maintenance		113			278			1,449			222			1,009			603			1,152			1,200			1,170			844			966			1,081			1,942			15,949			5,553			7,511			11,916			15,957			23,306			11,916		Trailing 12 Months
Make-Ready/Turnover		236			1,284			4,132			1,730			2,951			1,648			2,392			1,201			3,745			390			2,322			1,951			1,001			14,620			14,205			16,452			24,747			21,096			12,011			25,917		Trailing 12 Months
Administrative		298			3,060			3,672			1,721			3,348			3,110			2,307			2,380			4,143			1,331			2,574			2,310			1,368			30,903			23,439			25,321			31,323			25,005			16,413			33,177		Trailing 12 Months
Marketing		166			2,056			2,480			4,411			(1,773	)		1,506			1,358			1,244			1,114			686			1,109			2,653			588			13,120			12,744			14,494			17,432			17,402			7,060			18,685		Trailing 12 Months
Payroll		1,748			18,514			14,238			14,823			17,350			15,609			16,127			15,003			15,736			12,343			16,176			12,085			15,502			82,113			88,719			113,090			183,507			175,052			186,023			126,000		Estimated at $1,200/unit
Management Fees		350			2,928			2,943			2,908			2,947			3,183			3,174			3,208			3,326			3,276			2,894			3,196			2,752			35,317			36,327			35,126			36,734			35,367			33,019			38,788		4% of EGR
Real Estate Taxes		909			7,127			6,636			6,636			6,636			5,518			6,704			8,853			6,484			10,729			10,000			10,000			10,150			74,787			67,521			159,595			95,473			120,600			121,800			116,643		85% reassessment of BOV pricing
Insurance		262			2,195			2,169			2,169			2,169			2,615			2,189			2,189			2,189			2,189			2,189			2,638			2,638			21,935			24,792			26,245			27,539			29,862			31,659			26,250		Estimated at $250/unit
Operating Expenses Per Unit		5,474			48,146			48,490			44,858			45,589			43,429			47,687			45,379			49,937			48,225			52,162			51,524			49,381			418,066			422,541			560,985			574,807			612,266			592,571			543,780
																																																		5,474			5,831			5,644			5,179
																																																		37.5	%
Net Operating Income		3,423			28,509			25,492			37,519			33,672			37,359			31,438			31,013			24,499			28,195			25,308			26,726			29,683			469,605			487,635			336,890			359,412			326,871			356,198			425,931
Reserves																																																											31,500		Estimated at $300/unit
Free Cash Flow		3,423			28,509			25,492			37,519			33,672			37,359			31,438			31,013			24,499			28,195			25,308			26,726			29,683			469,605			487,635			336,890			359,412			326,871			356,198			394,431
																																																											7.75	%	market cap rate
Total Number of Units		105		Rent / Unit				783
Net Rentable Square Feet		86,705		Rent / Sq Ft				0.95																																																			5,089,436		Gross Price
Average Square Feet Per Unit		826		Built:				1972
Ownership		22.05	%	Tax Assessment				1,308,700
Property Number:		000606

Current Debt Info:
Original Balance		5,536,142
Current Balance		4,155,384
Interest Rate		6.2	%		Price / Unit	48,471
Amortization Term	fill				Price/Ft.	58.70
Maturity Term	fill
Origination Date	fill			RE Tax Explanation:
Prepay Penalty	fill
Loan Type		CONVENTIONAL
YM expiration date		1/0/00
Due Date		1/0/00		Other Comments:
Is Debt Prepayable? (Y/N)		Y

EX-99.(C)(10)

EXHIBIT (c)(10)

000608

Forest Ridge

Flagstaff, AZ

																																																	Trailing
				Trailing 12 Months (Actual)																																				2003			2004			2005			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		7,638			204,172			205,512			211,366			208,360			158,330			161,852			159,376			160,888			163,784			160,948			164,244			164,564			2,235,714			2,349,748			2,273,426			2,123,396			1,959,024			1,974,768			2,161,141		May 06 Mkt Rent + 1% growth
Less: Loss to Lease		733			(4,637	)		(4,638	)		(6,432	)		(5,234	)		45,271			37,622			37,111			33,341			27,722			23,974			19,258			391			(14,301	)		(73,704	)		117,530			203,749			174,491			4,696			(160,280	)	Current Loss to Lease
Gross Potential Rent		8,371			199,535			200,874			204,934			203,126			203,601			199,474			196,487			194,229			191,506			184,922			183,502			164,955			2,221,413			2,276,044			2,390,956			2,327,145			2,133,515			1,979,464			2,000,861		Current GPR + 1% growth
Concessions		(324	)		(4,006	)		(3,710	)		(3,672	)		(5,701	)		(7,578	)		(9,514	)		(9,593	)		(9,085	)		(9,012	)		(9,630	)		(9,512	)		(9,129	)		(27,156	)		(82,885	)		(69,819	)		(90,142	)		(113,084	)		(109,549	)		(80,034	)	4% concession Loss
Vacancy		(475	)		(16,038	)		(16,585	)		(16,968	)		(9,953	)		(2,334	)		(6,710	)		(13,214	)		(19,977	)		(15,603	)		(6,036	)		(5,693	)		(2,907	)		(237,532	)		(189,133	)		(161,166	)		(132,017	)		(58,541	)		(34,878	)		(100,043	)	5% Vacancy Loss
Other Rent Losses		—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			—			(10,004	)	.5% Other/Bad Debt Loss
Bad Debt		(46	)		280			(1,631	)		1,037			(5,655	)		(1,822	)		(2,674	)		(3,169	)		2,573			(1,399	)		(717	)		114			197			(6,484	)		(25,785	)		(13,629	)		(12,865	)		(1,625	)		2,365			—
Net Rental Income		7,526			179,772			178,949			185,330			181,817			191,867			180,577			170,512			167,739			165,492			168,539			168,411			153,117			1,950,241			1,978,241			2,146,342			2,092,122			1,960,266			1,837,402			1,810,779
Economic Occupancy		90	%		90	%		89	%		90	%		90	%		94	%		91	%		87	%		86	%		86	%		91	%		92	%		93	%		88	%		87	%		90	%		90	%		92	%		93	%		90	%
Physical Vacancy		5.7	%		8.0	%		8.3	%		8.3	%		4.9	%		1.1	%		3.4	%		6.7	%		10.3	%		8.1	%		3.3	%		3.1	%		1.8	%		10.7	%		8.3	%		6.7	%		5.7	%		2.7	%		1.8	%		5.0	%
Other Income		992			11,592			18,519			7,364			20,725			15,900			24,749			29,809			14,564			34,051			34,352			33,636			30,545			184,699			194,316			201,319			275,807			394,131			366,538			617,261		See Below for detail on RUBS
Gross Revenues		8,518			191,364			197,469			192,695			202,542			207,767			205,325			200,321			182,304			199,543			202,891			202,046			183,662			2,134,940			2,172,557			2,347,661			2,367,929			2,354,397			2,203,941			2,428,040
Operating Expenses
Utilities		1,446			30,975			29,544			23,873			21,990			30,831			24,836			35,561			25,000			36,477			73,278			72,775			(3,186	)		296,582			343,360			372,130			401,955			571,469			(38,231	)		432,831		Trailing 12 Months
Contract Services & Landscaping		56			1,302			1,007			1,144			972			1,103			2,325			(1,708	)		6,354			972			1,083			1,045			(83	)		70,335			65,607			19,515			15,513			8,177			(1,000	)		16,559		Trailing 12 Months
Repairs & Maintenance		178			3,061			3,984			3,515			2,752			5,221			2,658			2,861			4,634			2,112			13,744			2,543			2,422			97,572			34,650			37,025			49,507			74,833			29,061			49,337		Trailing 12 Months
Make-Ready/Turnover		173			3,395			3,130			3,835			3,818			6,113			3,372			2,138			8,745			5,367			2,362			3,274			2,543			88,245			50,547			47,183			48,094			32,717			30,520			48,094		Trailing 12 Months
Administrative		220			3,765			4,809			5,571			4,291			4,147			6,174			7,283			5,869			3,157			5,409			7,726			2,952			61,276			50,529			54,340			61,154			64,348			35,426			54,692		CY 2005 Actual
Marketing		157			2,629			3,690			4,462			2,815			4,732			3,667			3,468			4,040			3,781			2,503			6,139			1,644			49,952			34,070			40,782			43,569			41,143			19,732			44,797		Trailing 12 Months
Payroll		1,425			36,890			30,185			35,061			39,387			34,798			38,421			30,167			33,466			32,807			30,364			28,640			25,842			250,957			364,896			407,565			396,027			339,384			310,104			378,927		CY 2004 Actual
Management Fees		383			8,257			8,413			8,799			8,278			8,776			10,029			9,140			9,039			8,588			9,345			8,842			9,049			96,996			99,264			105,877			106,555			108,945			108,587			72,841		3% of EGR
Real Estate Taxes		340			7,775			7,594			7,775			7,775			7,775			7,843			7,333			8,038			8,146			8,087			8,087			8,258			96,919			90,671			93,250			94,485			97,723			99,090			115,815		75% reassessment of FCV
Insurance		216			4,776			4,745			4,745			4,745			5,584			4,789			4,789			4,789			4,789			4,789			5,698			5,698			51,450			57,663			56,085			59,937			64,736			68,370			55,600		Estimated at $200/unit
Operating Expenses Per Unit		4,593			102,826			97,101			98,781			96,824			109,082			104,114			101,032			109,973			106,195			150,963			144,768			55,138			1,160,284			1,191,259			1,233,753			1,276,796			1,403,475			661,659			1,269,494
																																																		4,593			5,048			2,380			4,567
																																																		10.0	%
Net Operating Income		3,925			88,538			100,367			93,914			105,719			98,684			101,212			99,289			72,331			93,348			51,929			57,279			128,523			974,656			981,298			1,113,908			1,091,133			950,922			1,542,281			1,158,546
Reserves																																																											97,300		Estimated at $300/unit
Free Cash Flow		3,925			88,538			100,367			93,914			105,719			98,684			101,212			99,289			72,331			93,348			51,929			57,279			128,523			974,656			981,298			1,113,908			1,091,133			950,922			1,542,281			1,061,246
Total Number of Units		278		Rent / Unit				640																																																			6.25	%	market cap rate
Net Rentable Square Feet		189,528		Rent / Sq Ft				0.86
Average Square Feet Per Unit		682		Built:				1967																																																			16,979,943		Gross Price
Ownership		22.05	%	Tax Assessment				0
Property Number:		000608

Current Debt Info:
Original Balance		4,743,752
Current Balance		2,012,584
Interest Rate		8.5	%			Price / Unit	61,079
Amortization Term	fill					Price/Ft.	89.59
Maturity Term		39,448
Origination Date		35,827		RE Tax Explanation:
Prepay Penalty	fill
Loan Type	CONVENTIONAL
YM expiration date	fill
Due Date	fill			Other Comments:	The property recently started charging approx $150/unit/month for RUBS for all utilities. As such, market rent has been significantly reduced. Total
Is Debt Prepayable? (Y/N)		—

EX-99.(C)(11)

EXHIBIT (c)(11)

000603

North Park

EVANSVILLE, IN

																																																	Trailing
				Trailing 12 Months (Actual)																																				2003			2004			2005			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		6,458			137,716			147,508			153,068			158,876			156,102			156,102			154,286			155,668			155,818			150,978			151,130			156,922			1,899,722			1,968,944			1,823,990			1,834,174			1,836,120			1,883,064			1,909,264		May 06 Mkt Rent + 1% growth
Less: Loss to Lease		(32	)		14,158			4,232			(1,481	)		(6,953	)		(4,352	)		(5,234	)		(1,935	)		(3,488	)		(2,041	)		778			1,709			(4,412	)		(124,813	)		(126,659	)		9,633			(9,019	)		(7,700	)		(52,939	)		(60,235	)	Current Loss to Lease
Gross Potential Rent		6,427			151,874			151,740			151,587			151,923			151,750			150,868			152,351			152,180			153,777			151,756			152,839			152,510			1,774,909			1,842,285			1,833,623			1,825,155			1,828,420			1,830,125			1,849,029
Concessions		(62	)		(3,083	)		(2,738	)		(1,834	)		(1,520	)		(1,345	)		(1,203	)		(1,259	)		(1,138	)		(889	)		(879	)		(901	)		(795	)		(63,687	)		(48,508	)		(29,129	)		(17,583	)		(10,298	)		(9,536	)		(9,245	)	.5% Concession Loss
Vacancy		(283	)		(6,303	)		(6,380	)		(6,225	)		(10,485	)		(7,074	)		(6,347	)		(4,136	)		(4,835	)		(7,483	)		(8,176	)		(7,164	)		(5,849	)		(90,065	)		(130,294	)		(110,414	)		(80,456	)		(84,755	)		(70,192	)		(92,451	)	5% Vacancy Loss
Other Rent Losses		(20	)		(399	)		(436	)		(466	)		(509	)		(488	)		(488	)		(489	)		(492	)		(492	)		(452	)		(452	)		(472	)		—			—			(4,316	)		(5,635	)		(5,504	)		(5,664	)		(36,981	)	2% Other/Bad Debt Loss
Bad Debt		(112	)		(2,670	)		(74	)		(3,933	)		(2,136	)		(3,078	)		(3,986	)		(5,874	)		(1,106	)		(1,340	)		(1,582	)		(3,089	)		(2,962	)		(62,733	)		(34,338	)		(31,315	)		(31,831	)		(30,530	)		(35,540	)		—
Net Rental Income		5,949			139,419			142,112			139,129			137,273			139,765			138,844			140,593			144,609			143,573			140,667			141,234			142,433			1,558,425			1,629,146			1,658,448			1,689,650			1,697,333			1,709,193			1,710,352
Economic Occupancy		93	%		92	%		94	%		92	%		90	%		92	%		92	%		92	%		95	%		93	%		93	%		92	%		93	%		88	%		88	%		90	%		93	%		93	%		93	%		93	%
Physical Vacancy		4.4	%		4.1	%		4.2	%		4.1	%		6.9	%		4.7	%		4.2	%		2.7	%		3.2	%		4.9	%		5.4	%		4.7	%		3.8	%		5.1	%		7.1	%		6.0	%		4.4	%		4.6	%		3.8	%		5.0	%
Other Income		659			17,633			10,163			14,044			13,546			20,274			18,181			19,892			12,962			13,980			18,856			10,944			16,740			139,200			145,121			174,651			187,216			186,162			200,879			187,216		Trailing 12 Months
Gross Revenues		6,609			157,053			152,275			153,173			150,818			160,038			157,025			160,486			157,571			157,553			159,523			152,178			159,173			1,697,625			1,774,267			1,833,099			1,876,865			1,883,494			1,910,072			1,897,568
Operating Expenses
Utilities		909			19,996			14,693			14,680			14,131			16,765			14,893			20,650			31,292			32,563			32,315			27,304			19,012			174,586			189,053			242,474			258,293			314,521			228,145			259,171		Trailing 12 Months
Contract Services & Landscaping		245			7,657			4,747			13,804			(3,565	)		5,774			5,660			2,061			11,101			2,057			5,544			5,050			9,798			67,946			63,922			66,399			69,688			81,569			117,582			69,688		Trailing 12 Months
Repairs & Maintenance		74			1,135			2,111			1,185			1,828			2,884			2,887			1,901			1,609			1,669			306			962			2,588			20,077			22,398			24,921			21,065			15,424			31,052			21,065		Trailing 12 Months
Make-Ready/Turnover		229			10,215			4,818			5,459			6,707			6,312			6,022			3,303			4,489			3,559			5,313			3,631			5,124			84,334			64,842			76,821			64,950			56,271			61,494			64,950		Trailing 12 Months
Administrative		172			4,404			3,334			4,581			3,929			2,528			3,168			6,271			3,283			2,533			2,024			9,602			3,321			31,564			40,682			46,498			48,977			59,789			39,856			51,294		Trailing 12 Months
Marketing		153			4,671			3,483			3,892			3,176			5,266			6,586			3,051			3,296			2,704			2,464			3,642			1,133			30,942			39,146			47,532			43,364			28,955			13,596			44,828		Trailing 12 Months
Payroll		660			18,044			12,845			9,302			16,894			9,751			15,482			16,269			15,943			19,528			16,815			18,020			18,447			152,059			201,896			177,901			187,341			213,132			221,367			239,744		Trailing 12 Months
Management Fees		261			6,002			5,967			5,944			6,054			6,020			6,189			6,454			6,908			6,328			6,165			6,245			5,935			67,452			69,771			72,480			74,210			73,380			71,225			56,927		3% of EGR
Real Estate Taxes		834			30,024			16,473			16,473			16,473			16,473			16,540			18,848			16,077			18,088			17,592			17,592			36,132			172,122			213,245			203,632			236,784			285,263			433,578			163,192		2006 taxes (includes deduct for replace cdt)
Insurance		269			5,369			5,297			5,297			5,297			6,433			5,352			5,352			5,352			5,352			5,352			11,043			11,043			64,586			65,620			64,047			76,537			109,747			132,511			71,000		Est at $250/unit
Operating Expenses Per Unit		3,807			107,516			73,768			80,616			70,923			78,205			82,780			84,159			99,350			94,379			93,889			103,090			112,534			865,669			970,574			1,022,705			1,081,209			1,238,051			1,350,407			1,041,859
																																																		3,807			4,359			4,755			3,669
																																																		24.9	%
Net Operating Income		2,802			49,536			78,507			72,557			79,895			81,833			74,245			76,326			58,222			63,174			65,634			49,088			46,639			831,957			803,693			810,393			795,657			645,443			559,665			855,708
Reserves																																																											85,200		Est at $300/unit
Free Cash Flow		2,802			49,536			78,507			72,557			79,895			81,833			74,245			76,326			58,222			63,174			65,634			49,088			46,639			831,957			803,693			810,393			795,657			645,443			559,665			770,508
Total Number of Units		284		Rent / Unit				537																																																			7.75	%	market cap rate
Net Rentable Square Feet		257,600		Rent / Sq Ft				0.59
Average Square Feet Per Unit		907		Built:				1970																																																			9,942,045		Gross Price
Ownership		22.05	%	Tax Assessment				0
Property Number:		000603

Current Debt Info:
Original Balance		4,743,752
Current Balance		2,012,584
Interest Rate		8.5	%		Price / Unit	35,007
Amortization Term	fill				Price/Ft.	38.59
Maturity Term		39,448
Origination Date		35,827		RE Tax Explanation:
Prepay Penalty	fill
Loan Type	CONVENTIONAL
YM expiration date	fill
Due Date	fill			Other Comments:
Is Debt Prepayable? (Y/N)		—

EX-99.(C)(12)

EXHIBIT (c)(12)

000637

Shadow-Wood (LA)

Monroe, LA

																																																	Trailing
				Trailing 12 Months (Actual)																																				2003			2004			2005			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		8,188			74,980			78,740			77,420			81,580			86,020			89,620			87,220			82,220			81,100			84,300			79,380			80,020			891,984			939,914			960,120			982,600			974,800			960,240			999,600		Market Rent as of May 2006
Less: Loss to Lease		(350	)		676			(2,905	)		(1,135	)		(4,321	)		(6,983	)		(11,479	)		(7,092	)		(2,279	)		(1,339	)		(4,444	)		374			(1,086	)		(37,442	)		(46,854	)		(34,122	)		(42,013	)		(20,620	)		(13,026	)		(52,386	)	Current Loss to Lease
Gross Potential Rent		7,838			75,656			75,835			76,285			77,259			79,037			78,141			80,128			79,941			79,761			79,856			79,754			78,934			854,542			893,060			925,998			940,587			954,180			947,214			947,214
Concessions		(55	)		(327	)		(337	)		(346	)		(421	)		(575	)		(1,020	)		(500	)		(650	)		(441	)		(739	)		(882	)		(373	)		(13,424	)		(5,706	)		(5,409	)		(6,612	)		(7,975	)		(4,481	)		(4,736	)	.5% Concession Loss
Vacancy		(487	)		(9,695	)		(7,510	)		(4,608	)		(1,244	)		(216	)		(1,835	)		(7,013	)		(7,789	)		(6,508	)		(5,716	)		(3,550	)		(2,780	)		(44,859	)		(66,267	)		(90,637	)		(58,464	)		(48,183	)		(33,360	)		(47,361	)	5% Vacancy Loss
Other Rent Losses		(9	)		—			—			—			—			—			—			—			—			—			—			(559	)		(569	)		26,915			—			—			(1,128	)		(4,512	)		(6,828	)		(14,208	)	1.5% Other/Bad Debt Loss
Bad Debt		(87	)		20			(1,426	)		(384	)		(39	)		(1,138	)		(2,131	)		(1,219	)		(1,363	)		(429	)		(1,208	)		(105	)		(1,004	)		(2,760	)		(19,967	)		(10,793	)		(10,426	)		(9,266	)		(12,045	)		—
Net Rental Income		7,200			65,654			66,562			70,947			75,554			77,107			73,155			71,396			70,140			72,382			72,193			74,659			74,208			820,415			801,121			819,158			863,958			884,244			890,499			880,909
Economic Occupancy		92	%		87	%		88	%		93	%		98	%		98	%		94	%		89	%		88	%		91	%		90	%		94	%		94	%		96	%		90	%		88	%		92	%		93	%		94	%		93	%
Physical Vacancy		6.2	%		12.8	%		9.9	%		6.0	%		1.6	%		0.3	%		2.3	%		8.8	%		9.7	%		8.2	%		7.2	%		4.5	%		3.5	%		5.2	%		7.4	%		9.8	%		6.2	%		5.0	%		3.5	%		5.0	%
Other Income		385			4,024			3,789			2,468			5,462			3,977			2,796			4,794			5,397			2,597			2,282			4,895			3,691			69,140			61,286			50,690			46,172			43,472			44,291			46,172		Trailing 12 Months
Gross Revenues		7,584			69,678			70,350			73,415			81,016			81,084			75,951			76,190			75,536			74,979			74,475			79,554			77,899			889,555			862,407			869,849			910,130			927,715			934,790			927,081
Operating Expenses
Utilities		789			8,209			6,721			6,515			7,176			6,332			8,257			8,409			8,510			10,036			9,448			7,884			7,134			76,348			77,849			92,529			94,632			97,865			85,608			94,632		Trailing 12 Months
Contract Services & Landscaping		223			1,948			1,785			2,314			3,235			2,330			2,939			1,989			2,454			1,467			1,978			2,058			2,231			25,844			22,641			25,780			26,728			25,070			26,773			26,728		Trailing 12 Months
Repairs & Maintenance		72			872			677			711			724			489			574			509			1,098			245			986			940			815			8,549			9,748			8,802			8,642			10,968			9,783			9,008		Trailing 12 Months
Make-Ready/Turnover		164			1,221			2,922			2,916			2,621			2,308			47			1,418			1,287			605			1,654			1,014			1,609			19,161			17,052			19,963			19,623			17,109			19,307			19,866		Trailing 12 Months
Administrative		235			1,811			1,925			1,831			2,757			2,331			2,049			1,366			4,111			1,215			3,958			2,161			2,644			24,442			28,622			28,783			28,159			35,052			31,723			40,828		Trailing 12 Months
Marketing		177			222			2,302			1,895			1,559			3,253			2,396			1,049			1,420			1,100			1,079			3,098			1,899			14,397			13,470			20,335			21,271			24,305			22,786			20,286		Trailing 12 Months
Payroll		1,133			13,527			9,852			12,741			12,684			11,835			11,101			11,848			11,866			11,017			8,635			11,465			9,363			103,216			134,096			143,867			135,935			117,851			112,351			140,377		Trailing 12 Months
Management Fees		349			2,989			3,330			3,256			3,227			3,680			3,633			3,760			3,780			3,646			3,385			3,693			3,535			40,252			39,669			40,456			41,916			42,454			42,423			37,083		4% of EGR
Real Estate Taxes		343			1,576			2,885			2,885			2,885			3,165			3,312			2,885			9,666			3,030			2,971			2,971			2,971			43,362			40,941			42,690			41,200			35,654			35,654			50,858		Reassessed at 90% of BOV
Insurance		349			15,837			2,233			2,222			2,222			3,475			1,542			2,312			2,312			2,312			2,312			2,636			2,505			24,865			26,218			40,375			41,921			29,812			30,057			48,000		Estimated at $400/unit
Operating Expenses Per Unit		3,834			48,212			34,632			37,286			39,089			39,198			35,853			35,545			46,505			34,673			36,408			37,921			34,705			380,437			410,305			463,579			460,027			436,140			416,465			487,665
																																																		3,834			3,634			3,471			4,064
																																																		20.9	%
Net Operating Income		3,751			21,466			35,719			36,129			41,927			41,886			40,098			40,645			29,031			40,306			38,067			41,633			43,194			509,118			452,102			406,270			450,102			491,575			518,325			439,416
Reserves																																																											36,000		Estimated at $300/unit
Free Cash Flow		3,751			21,466			35,719			36,129			41,927			41,886			40,098			40,645			29,031			40,306			38,067			41,633			43,194			509,118			452,102			406,270			450,102			491,575			518,325			403,416
																																																											8.00	%	market cap rate
Total Number of Units		120		Rent / Unit				663
Net Rentable Square Feet		106,920		Rent / Sq Ft				0.76																																																			5,042,697		Gross Price
Average Square Feet Per Unit		891		Built:				1974
Ownership		22.05	%	Tax Assessment				0
Property Number:		000637

Current Debt Info:
Original Balance			4,743,752
Current Balance			2,012,584
Interest Rate			8.5	%		Price / Unit	42,022
Amortization Term	fill					Price/Ft.	47.16
Maturity Term			39,448
Origination Date			35,827		RE Tax Explanation:
Prepay Penalty	fill
Loan Type		CONVENTIONAL
YM expiration date	fill
Due Date	fill				Other Comments:
Is Debt Prepayable? (Y/N)			—

EX-99.(C)(13)

EXHIBIT (c)(13)

000607

Terrace Garden Townhouses

OMAHA, NE

																																																	Trailing
				Trailing 12 Months (Actual)																																				2002			2003			2004			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		9,989			103,494			103,494			103,540			104,296			104,548			105,400			105,400			105,400			105,400			106,090			106,090			105,460			1,254,329			1,228,068			1,239,318			1,258,612			1,270,560			1,265,520			1,278,175		May 06 Mkt Rent + 1% growth
Less: Loss to Lease		(236	)		(1,515	)		(1,649	)		(720	)		(1,775	)		(2,361	)		(2,493	)		(2,526	)		(2,120	)		(3,602	)		(3,458	)		(3,783	)		(3,742	)		(39,927	)		(9,109	)		(12,780	)		(29,744	)		(43,931	)		(44,899	)		(44,899	)	Current Loss to Lease
Gross Potential Rent		9,753			101,979			101,845			102,820			102,521			102,187			102,907			102,874			103,280			101,798			102,632			102,307			101,718			1,214,402			1,218,959			1,226,538			1,228,868			1,226,629			1,220,621			1,233,276
Concessions		(571	)		(6,888	)		(6,646	)		(6,033	)		(6,368	)		(6,180	)		(6,615	)		(6,340	)		(6,200	)		(6,373	)		(5,809	)		(4,623	)		(3,846	)		(21,058	)		(35,599	)		(55,830	)		(71,920	)		(57,110	)		(46,146	)		(61,664	)	5% Concession Loss
Vacancy		(505	)		(5,393	)		(4,865	)		(5,879	)		(2,680	)		(5,411	)		(6,861	)		(3,885	)		(4,117	)		(2,207	)		(4,764	)		(8,422	)		(9,085	)		(91,542	)		(149,515	)		(180,155	)		(63,570	)		(89,085	)		(109,018	)		(61,664	)	5% Vacancy Loss
Other Rent Losses		(73	)		(749	)		(749	)		(749	)		(750	)		(749	)		(769	)		(769	)		(769	)		(769	)		(779	)		(779	)		(779	)		—			(6,981	)		(8,858	)		(9,159	)		(9,348	)		(9,348	)		(6,166	)	.5% Other/Bad Debt Loss
Bad Debt		(24	)		1,362			118			(1,580	)		(605	)		(2,470	)		(773	)		218			436			150			(478	)		268			317			(101,275	)		(56,197	)		(49,469	)		(3,039	)		426			3,802			—
Net Rental Income		8,581			90,312			89,702			88,579			92,118			87,377			87,888			92,097			92,631			92,599			90,801			88,751			88,326			1,000,527			970,667			932,226			1,081,181			1,071,512			1,059,910			1,103,782
Economic Occupancy		88	%		89	%		88	%		86	%		90	%		86	%		85	%		90	%		90	%		91	%		88	%		87	%		87	%		82	%		80	%		76	%		88	%		87	%		87	%		90	%
Physical Vacancy		5.2	%		5.3	%		4.8	%		5.7	%		2.6	%		5.3	%		6.7	%		3.8	%		4.0	%		2.2	%		4.6	%		8.2	%		8.9	%		7.5	%		12.3	%		14.7	%		5.2	%		7.3	%		8.9	%		5.0	%
Other Income		627			6,831			5,043			5,819			7,862			10,219			7,714			8,354			4,344			6,212			5,273			4,322			7,059			130,569			90,407			110,241			79,051			66,615			84,707			79,051		Trailing 12 Months
Gross Revenues		9,208			97,142			94,745			94,398			99,981			97,596			95,602			100,451			96,975			98,810			96,074			93,072			95,385			1,131,096			1,061,074			1,042,467			1,160,232			1,138,126			1,144,617			1,182,833
Operating Expenses
Utilities		394			3,870			3,892			2,804			3,500			5,133			3,868			3,584			4,645			3,883			6,131			5,722			2,591			42,673			44,266			50,385			49,622			57,775			31,088			51,408		Trailing 12 Months
Contract Services & Landscaping		207			2,612			2,019			3,190			2,059			1,857			2,816			1,810			4,462			616			151			2,510			1,983			24,401			29,721			22,999			26,087			18,579			23,798			26,303		Trailing 12 Months
Repairs & Maintenance		164			2,538			2,412			1,926			1,481			1,768			2,125			809			1,751			1,444			1,018			1,929			1,459			32,394			31,860			22,625			20,659			17,626			17,512			20,659		Trailing 12 Months
Make-Ready/Turnover		298			2,396			2,707			5,288			4,878			4,374			5,111			2,268			3,026			1,038			1,953			2,895			1,633			35,452			55,685			39,714			37,567			25,927			19,601			37,567		Trailing 12 Months
Administrative		220			1,588			1,938			2,585			1,970			2,782			2,473			1,417			2,019			1,964			1,765			4,097			3,123			41,493			32,292			31,011			27,719			35,938			37,473			28,318		Trailing 12 Months
Marketing		264			4,264			4,187			4,122			2,041			3,824			3,101			2,444			1,464			1,744			2,063			3,848			193			28,526			38,304			35,519			33,295			24,413			2,312			35,592		Trailing 12 Months
Payroll		1,226			16,135			10,905			16,486			15,635			7,285			11,211			10,357			13,495			9,296			16,077			14,299			13,286			97,793			126,854			148,366			154,466			174,645			159,427			171,491		Trailing 12 Months
Management Fees		420			4,329			4,443			4,232			4,282			4,326			4,455			4,467			4,840			4,316			4,541			4,516			4,215			50,250			48,156			48,000			52,961			53,087			50,578			47,313		4% of EGR
Real Estate Taxes		966			8,636			8,636			10,180			16,277			9,845			9,913			9,845			9,845			10,639			7,394			10,140			10,405			115,843			112,364			92,572			121,753			111,756			124,860			138,490		90% Reassessment of BOV
Insurance		319			3,188			3,168			3,168			3,168			3,839			3,192			3,192			3,192			3,192			3,192			3,875			3,875			33,994			38,185			38,147			40,237			43,763			46,495			37,800		Estimated at $300/unit
Operating Expenses Per Unit		4,479			49,556			44,305			53,981			55,290			45,032			48,264			40,191			48,738			38,132			44,284			53,831			42,762			502,819			557,687			529,337			564,366			563,510			513,145			594,940
																																																		4,479			4,472			4,073			4,722
Net Operating Income		4,729			47,586			50,440			40,418			44,691			52,565			47,337			60,260			48,237			60,678			51,790			39,241			52,623			628,278			503,387			513,130			595,866			574,617			631,472			587,893
Reserves																																																											37,800		Estimated at $300/unit
Free Cash Flow		4,729			47,586			50,440			40,418			44,691			52,565			47,337			60,260			48,237			60,678			51,790			39,241			52,623			628,278			503,387			513,130			595,866			574,617			631,472			550,093
																																																											7.50	%	market cap rate
Total Number of Units		126		Rent / Unit				811
Net Rentable Square Feet		189,618		Rent / Sq Ft				0.56																																																			7,334,569		Gross Price
Average Square Feet Per Unit		1,505		Built:				1975
Ownership		22.05	%	Tax Assessment				4,684,000
Property Number:		000607

Current Debt Info:
Original Balance			8,421,388
Current Balance			5,473,158
Interest Rate			6.5	%		Price / Unit	58,211
Amortization Term			20			Price/Ft.	38.68
Maturity Term			10
Origination Date	1997-12-29				RE Tax Explanation:
Prepay Penalty			557,126
Loan Type		CONVENTIONAL
YM expiration date			1/0/00
Due Date			1/1/08		Other Comments:
Is Debt Prepayable? (Y/N)			Y

EX-99.(C)(14)

Exhibit (c)(14)

000638
Vista Village
El Paso, TX

																																																	Trailing
				Trailing 12 Months (Actual)																																				2002			2003			2004			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]			May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent		7,197			134,640			140,390			153,415			148,120			147,270			137,785			136,035			127,015			111,620			111,485			116,330			119,250			1,390,100			1,416,945			1,557,308			1,583,355			1,388,260			1,431,000			1,570,176		May 06 Mkt Rent + 4.8% growth
Less: Loss to Lease		(42	)		(4,232	)		(9,576	)		(20,962	)		(13,701	)		(15,494	)		(3,711	)		(3,983	)		5,929			19,637			16,113			12,136			8,541			(13,281	)		(22,844	)		(92,400	)		(9,304	)		147,161			102,494			35,234		Current Gain to Lease
Gross Potential Rent		7,155			130,408			130,814			132,453			134,419			131,776			134,074			132,052			132,944			131,257			127,598			128,466			127,791			1,376,819			1,394,101			1,464,908			1,574,051			1,535,421			1,533,494			1,605,410
Concessions		(417	)		(6,598	)		(6,912	)		(7,176	)		(7,517	)		(6,244	)		(6,734	)		(6,405	)		(7,016	)		(8,656	)		(8,998	)		(9,978	)		(9,400	)		(23,024	)		(20,649	)		(37,930	)		(91,635	)		(113,502	)		(112,798	)		(64,216	)	4% Concession Loss
Vacancy		(499	)		(9,243	)		(8,877	)		(4,463	)		(10,077	)		(15,737	)		(12,907	)		(15,917	)		(14,137	)		(7,496	)		(2,157	)		(2,841	)		(5,878	)		(47,875	)		(29,946	)		(68,671	)		(109,731	)		(43,504	)		(70,536	)		(64,216	)	4% Vacancy Loss
Other Rent Losses		(61	)		(1,118	)		(1,168	)		(1,285	)		(1,260	)		(1,250	)		(1,197	)		(1,167	)		(1,083	)		(958	)		(979	)		(998	)		(1,028	)		(5,726	)		(10,569	)		(13,505	)		(13,491	)		(12,020	)		(12,336	)		(8,027	)	.5% Other/Bad Debt Loss
Bad Debt		(53	)		2,188			(684	)		(2,240	)		(2,354	)		(1,827	)		(2,073	)		(928	)		(869	)		337			610			(2,661	)		(1,089	)		(10,552	)		(52,552	)		(51,313	)		(11,588	)		(12,557	)		(13,065	)		—
Net Rental Income		6,125			115,637			113,173			117,289			113,211			106,717			111,163			107,635			109,839			114,483			116,074			111,989			110,397			1,289,642			1,280,386			1,293,490			1,347,606			1,353,839			1,324,760			1,468,950
Economic Occupancy		86	%		89	%		87	%		89	%		84	%		81	%		83	%		82	%		83	%		87	%		91	%		87	%		86	%		94	%		92	%		88	%		86	%		88	%		86	%		91	%
Physical Vacancy		7.0	%		7.1	%		6.8	%		3.4	%		7.5	%		11.9	%		9.6	%		12.1	%		10.6	%		5.7	%		1.7	%		2.2	%		4.6	%		3.5	%		2.1	%		4.7	%		7.0	%		2.8	%		4.6	%		4.0	%
Other Income		427			4,558			5,357			3,714			7,162			2,779			8,515			7,239			7,687			6,897			9,032			13,230			17,828			69,560			96,793			101,471			93,998			160,356			213,933			93,998		Trailing 12 Months
Gross Revenues		6,553			120,195			118,530			121,003			120,374			109,497			119,678			114,874			117,525			121,380			125,106			125,219			128,224			1,359,202			1,377,179			1,394,961			1,441,604			1,514,195			1,538,693			1,562,948
Operating Expenses
Utilities		1,268			14,868			17,536			19,010			26,819			22,334			24,815			37,272			21,448			38,526			25,747			20,731			9,833			224,701			188,719			258,693			278,939			225,245			117,997			287,536		Trailing 12 Months
Contract Services & Landscaping		258			6,370			5,219			4,814			4,997			4,255			5,390			4,308			4,221			3,969			4,964			4,241			4,067			80,597			84,370			73,890			56,816			53,092			48,806			58,616		Trailing 12 Months
Repairs & Maintenance		306			3,207			6,464			2,295			3,809			8,695			8,784			4,149			7,587			851			3,576			10,881			7,083			53,916			56,388			55,014			67,381			86,164			85,002			55,014		CY 2004
Make-Ready/Turnover		320			5,249			2,903			1,725			5,103			11,294			7,219			4,465			10,732			3,512			5,365			6,827			5,980			69,967			62,686			51,171			70,375			72,688			71,762			51,171		CY 2004
Administrative		177			3,125			2,987			1,843			4,167			4,628			4,737			2,160			5,222			2,171			3,343			2,550			1,914			31,858			37,171			34,538			38,846			31,228			22,969			33,000		Estimated at $150/unit
Marketing		247			3,610			3,394			2,858			4,180			4,922			2,943			3,256			6,495			10,234			2,962			6,718			2,685			38,220			34,965			36,926			54,257			49,462			32,225			45,632		CY 2005
Payroll		991			23,648			11,752			17,413			21,836			12,046			20,426			17,954			20,481			17,646			18,361			18,236			18,328			101,629			160,540			181,496			218,126			219,701			219,935			209,000		Estimated at $950/unit
Management Fees		304			5,162			5,675			5,539			5,827			5,433			5,408			5,766			5,292			5,437			5,555			6,119			5,611			64,428			64,663			65,548			66,823			69,139			67,330			46,888		3% of EGR
Real Estate Taxes		603			9,695			9,742			7,219			9,383			12,633			9,811			9,743			12,231			14,025			10,771			10,717			16,754			113,783			107,229			121,878			132,724			152,967			201,046			170,585		Reassessed at 80% of BOV
Insurance		270			4,809			4,723			4,723			4,723			5,713			4,758			4,758			4,758			4,758			4,758			5,440			5,440			48,066			56,985			58,006			59,362			62,550			65,277			55,000		Estimated at $250/unit
Operating Expenses		4,744			79,741			70,394			67,441			90,843			91,953			94,291			93,831			98,466			101,129			85,403			92,460			77,696			827,164			853,716			937,159			1,043,649			1,022,236			932,349			1,012,443
Per Unit																																																		4,744			4,647			4,238			4,602
																																																		26.2	%
Net Operating Income		1,809			40,454			48,136			53,562			29,531			17,544			25,387			21,043			19,059			20,251			39,702			32,759			50,529			532,037			523,463			457,803			397,955			491,958			606,343			550,505
Reserves																																																											66,000		Estimated at $300/unit
Free Cash Flow		1,809			40,454			48,136			53,562			29,531			17,544			25,387			21,043			19,059			20,251			39,702			32,759			50,529			532,037			523,463			457,803			397,955			491,958			606,343			484,505
																																																											7.75	%	market cap rate
Total Number of Units		220		Rent / Unit				582
Net Rentable Square Feet		156,370		Rent / Sq Ft				0.74																																																			6,251,680		Gross Price
Average Square Feet Per Unit		711		Built:				1972
Ownership		22.05	%	Tax Assessment				4,044,693
Property Number:		000638

Current Debt Info:
Original Balance			8,406,213
Current Balance			4,269,017
Interest Rate			6.3	%		Price / Unit	28,417
Amortization Term	fill					Price/Ft.	39.98
Maturity Term	fill
Origination Date	fill				RE Tax Explanation:
Prepay Penalty	fill
Loan Type		CONVENTIONAL
YM expiration date			1/0/00
Due Date			1/0/00		Other Comments:
Is Debt Prepayable? (Y/N)			Y

EX-99.(C)(15)

Exhibit (c)(15)

000636
Watergate
Little Rock, AR

																																																Trailing
			Trailing 12 Months (Actual)																																				2003			2004			2005			12 Month			90 Day			30 Day			Adjusted			Explanation
	Per Unit [1]		May-05			Jun-05			Jul-05			Aug-05			Sep-05			Oct-05			Nov-05			Dec-05			Jan-06			Feb-06			Mar-06			Apr-06			Actuals			Actuals			Actuals			Total			Annualized			Annualized			FCF			To Adjustment
Rental Income
Market Rent	8,190			96,500			95,560			95,160			95,610			95,610			95,430			94,430			94,430			95,390			95,390			96,370			96,690			1,112,718			1,116,052			1,139,010			1,146,570			1,153,800			1,160,280			1,233,827		May 06 Mkt Rent + 4.3% growth
Less: Loss to Lease	(134	)		(3,677	)		(5,000	)		(1,627	)		(930	)		(2,254	)		(1,060	)		350			(469	)		(27	)		(289	)		(2,026	)		(1,814	)		(46,054	)		(28,212	)		(27,356	)		(18,823	)		(16,519	)		(21,772	)		(44,452	)	Current Loss to Lease
Gross Potential Rent	8,055			92,823			90,560			93,533			94,680			93,356			94,370			94,780			93,961			95,363			95,101			94,344			94,876			1,066,664			1,087,840			1,111,654			1,127,747			1,137,281			1,138,508			1,189,375
Concessions	(140	)		(1,091	)		(988	)		(1,457	)		(1,605	)		(1,943	)		(2,030	)		(1,942	)		(1,997	)		(1,465	)		(1,641	)		(1,808	)		(1,603	)		(29,855	)		(9,368	)		(15,809	)		(19,569	)		(20,207	)		(19,232	)		(17,841	)	1.5% Concession Loss
Vacancy	(735	)		(4,135	)		(11,893	)		(11,102	)		(11,131	)		(6,654	)		(7,742	)		(8,557	)		(9,225	)		(10,571	)		(7,140	)		(6,962	)		(7,802	)		(71,292	)		(177,425	)		(89,745	)		(102,912	)		(87,614	)		(93,621	)		(83,256	)	7% Vacancy Loss
Other Rent Losses	253			(679	)		(679	)		—			(22	)		(699	)		(912	)		30,486			(639	)		(639	)		10,417			(639	)		(639	)		(6,647	)		(7,626	)		24,617			35,357			36,557			(7,668	)		(11,894	)	1% Other/Bad Debt Loss
Bad Debt	(57	)		(1,487	)		(680	)		9			(1,816	)		(333	)		(80	)		(1,175	)		114			(2,072	)		(396	)		62			(191	)		(51,796	)		(58,493	)		(11,953	)		(8,044	)		(2,100	)		(2,291	)		—
Net Rental Income	7,376			85,432			76,321			80,983			80,107			83,728			83,605			113,593			82,215			80,616			96,341			84,997			84,641			907,074			834,928			1,018,764			1,032,579			1,063,917			1,015,696			1,076,384
Economic Occupancy	92	%		92	%		84	%		87	%		85	%		90	%		89	%		120	%		87	%		85	%		101	%		90	%		89	%		85	%		77	%		92	%		92	%		94	%		89	%		91	%
Physical Vacancy	9.1	%		4.5	%		13.1	%		11.9	%		11.8	%		7.1	%		8.2	%		9.0	%		9.8	%		11.1	%		7.5	%		7.4	%		8.2	%		6.7	%		16.3	%		8.1	%		9.1	%		7.7	%		8.2	%		7.0	%
Other Income	721			8,152			10,040			4,478			6,779			9,378			7,937			10,340			12,823			8,597			6,350			6,843			9,264			85,547			98,310			101,226			100,980			89,827			111,170			100,980		Trailing 12 Months
Gross Revenues	8,097			93,583			86,360			85,461			86,886			93,105			91,542			123,934			95,039			89,213			102,691			91,839			93,905			992,621			933,238			1,119,990			1,133,559			1,153,744			1,126,866			1,177,364
Operating Expenses
Utilities	1,002			12,450			9,535			10,312			5,654			4,298			8,048			11,375			17,071			17,619			15,987			16,261			11,641			134,210			140,796			135,783			140,250			175,555			139,692			140,724		Trailing 12 Months
Contract Services & Landscaping	223			2,860			8,028			(3,502	)		5,353			2,283			2,232			2,334			2,329			2,064			2,239			2,558			2,398			32,567			44,431			35,897			31,177			28,781			28,777			31,177		Trailing 12 Months
Repairs & Maintenance	245			1,285			1,859			3,273			2,480			4,915			3,414			1,268			3,324			2,049			4,945			2,671			2,819			26,105			45,506			29,036			34,300			41,738			33,826			34,301		Trailing 12 Months
Make-Ready/Turnover	275			1,147			2,262			9,641			1,337			5,048			2,980			1,305			5,217			3,134			1,289			2,851			2,285			41,181			56,760			49,016			38,498			25,701			27,421			38,498		Trailing 12 Months
Administrative	210			2,587			3,154			3,770			3,047			1,634			2,184			2,625			1,845			1,282			1,716			2,266			3,310			24,548			43,590			31,275			29,419			29,168			39,715			21,000		Estimated at $150/unit
Marketing	229			2,886			3,500			4,436			2,227			3,018			3,832			1,583			2,649			1,774			1,751			3,138			1,329			20,578			26,877			39,659			32,122			24,872			15,947			20,000		Estimated at a flat $20,000
Payroll	1,340			13,092			11,404			13,432			16,736			15,635			17,471			16,649			16,531			14,641			20,515			15,041			16,478			118,435			159,925			169,467			187,626			208,135			197,731			168,000		Estimated at $1,200/unit for 4 staff
Management Fees	354			4,219			4,276			3,952			3,938			4,024			3,863			4,317			4,550			4,150			4,061			4,243			3,962			45,450			43,232			49,255			49,554			49,065			47,541			35,321		3% of EGR
																																																												Reassessed at 85% of BOV
Real Estate Taxes	485			6,563			5,863			5,679			5,656			5,655			5,729			5,649			6,462			5,774			5,731			6,539			2,542			64,114			72,553			70,796			67,843			59,246			30,500			84,649
Insurance	281			3,077			3,077			3,062			3,062			3,702			3,099			3,088			3,088			3,088			3,088			3,938			3,938			37,110			38,434			37,049			39,307			43,855			47,253			38,500		Estimated at $275/unit
Operating Expenses Per Unit	4,644			50,166			52,958			54,055			49,490			50,212			52,853			50,193			63,066			55,575			61,323			59,506			50,700			544,297			672,104			647,233			650,095			686,115			608,403			612,169
																																																	4,644			4,901			4,346			4,373
																																																	19.4	%
Net Operating Income	3,453			43,418			33,402			31,406			37,396			42,893			38,689			73,741			31,973			33,638			41,368			32,334			43,205			448,323			261,134			472,757			483,463			467,629			518,463			565,195
Reserves																																																										42,000		Estimated at $300/unit
Free Cash Flow	3,453			43,418			33,402			31,406			37,396			42,893			38,689			73,741			31,973			33,638			41,368			32,334			43,205			448,323			261,134			472,757			483,463			467,629			518,463			523,195
																																																										7.25	%	market cap rate
Total Number of Units	140		Rent / Unit				677
Net Rentable Square Feet	150,220		Rent / Sq Ft				0.64																																																			7,216,482		Gross Price
Average Square Feet Per Unit	1,073		Built:				1979
Ownership	22.05%		Tax Assessment				4,223,200
Property Number:	000636

Current Debt Info:
Original Balance	fill
Current Balance	fill
Interest Rate	fill			Price / Unit	51,546
Amortization Term	fill			Price/Ft.	48.04
Maturity Term	fill
Origination Date	fill		RE Tax Explanation:
Prepay Penalty	fill
Loan Type		CONVENTIONAL
YM expiration date	fill
Due Date	fill		Other Comments:
Is Debt Prepayable? (Y/N)		—

EX-99.(C)(16)

APPRAISAL
OF
CASA DE MONTEREY APARTMENTS
12301 STUDEBAKER ROAD
NORWALK, CALIFORNIA

KTR JOB NO. 7-7-06512A

Ms. Martha Long	November 28, 2006
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, SC 29601

Re:	Casa De Monterey Apartments
	12301 Studebaker Road
	Norwalk, California

Dear Ms. Long:

At your request, KTR Valuation & Consulting Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of November 18, 2006. The date of value corresponds to the date the subject property was most recently inspected by the appraiser.

The subject property consists of a 5.47± acre tract of land improved with a 144-unit garden-style apartment complex known as the Casa De Monterey Apartments. Construction of the improvements was reportedly completed in 1970. The structural improvements were observed to be in average physical condition and consist of two-story wood frame construction with stucco and wood trim exterior walls and flat roofs with built-up covers. Amenities common to all units include gas stoves, garbage disposals, wiring for cable TV, ceiling fans and mini-blinds. Select units are provided with dishwashers, patios and fenced yards. Community amenities include on-site management/leasing office, controlled access gates, two swimming pools, three laundry rooms, covered parking and playground. The Casa De Monterey Apartments contain 107,744 rentable square feet, which suggests an average unit size of 748 square feet.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

5477 Glen Lakes Drive, Suite 202, Dallas, TX 75231
t e l 214.363.3373 • f a x 214.369.4388
w w w . f i r s t a m . c o m

Ms. Martha Long
VMS National Properties JV
November 28, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 18, 2006, is:

EIGHTEEN MILLION TWO HUNDRED THOUSAND DOLLARS
($18,200,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,

KTR VALUATION & CONSULTING SERVICES, LLC
By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page i

CERTIFICATE OF VALUE

We, William L. Corbin, MAI and Steven J. Goldberg, MAI, certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, are our personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Charles K. Russell provided significant professional help in this appraisal assignment.

Charles Russell made a personal a personal inspection of the property that is the subject of this appraisal. Neither William L. Corbin nor Steven J. Goldberg inspected the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, William L. Corbin, MAI and Steven J. Goldberg, MAI, have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

As of the date of this appraisal, William L. Corbin MAI is currently certified with the State of California Office of Real Estate Appraisers and is licensed as a Certified General Real Estate Appraiser (AG025737) until February 27, 2007.

KTR VALUATION & CONSULTING SERVICES, LLC
By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page ii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page iii

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page iv

SUBJECT PROPERTY PHOTOGRAPH

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page v

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certificate of Value	i
Basic Assumptions and Limiting Conditions	ii
Subject Photograph	iv
Table of Contents	v
Executive Summary	1
Introduction and Premises of the Appraisal	2
Regional Overview	4
Neighborhood Overview	10
Site Analysis	12
Real Estate Taxes	13
Zoning	14
Description of Improvements	15
Apartment Market Overview	17
Economic Rent Analysis	21
Highest and Best Use	27
Valuation Procedure	28
Income Capitalization Approach	29
Sales Comparison Approach	34
Reconciliation and Final Value Conclusion	38

ADDENDA

Subject Photographs
Comparable Rental Photographs
Comparable Sales
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map
Qualifications

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 1

EXECUTIVE SUMMARY

Property:	Casa De Monterey Apartments
Location:	12301 Studebaker Road, Norwalk, California
Assessors Parcel ID No:	8021-030-010 — Los Angeles County Assessor
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 18, 2006
Date of Report:	November 28, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of a 5.47± acre tract of land improved with a 144-unit garden-style apartment complex known as the Casa De Monterey Apartments. Construction of the improvements was reportedly completed in 1970. The Casa De Monterey Apartments contains 107,744 rentable square feet, which suggests an average unit size of 748 square feet.
Location:	The subject property is located in the northwestern portion of the City of Norwalk, along Studebaker Road, between Firestone Boulevard and Imperial Highway.
Zoning:	The subject site is zoned R-3 (Multiple-Family High Density Residential Zone) by the City of Norwalk. The intended use of land in this zoning district is multifamily residential development.
Flood Zone:	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone C, an area outside any special flood hazard areas as defined by FEMA.
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months
Valuation Assumptions:

Average Market Rent (per Unit)	$	1,197
Market Vacancy/Credit Loss		7.0	%
Operating Expense Ratio		47	%
Net Operating Income	$	1,046,163
Overall Capitalization Rate		5.75	%

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 2

Final Estimate of Market Value, by Approach
Cost Approach:	N/A
Sales Comparison Approach:	$	18,400,000
Income Approach:	$	18,200,000
Final Estimate of Market Value:	$	18,200,000

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 18, 2006. It is for the internal use of AIMCO to facilitate asset evaluation and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:
	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)”.
Marketing Period	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006, indicates that apartment properties in the national market have an average marketing time of 5.58 months, generally similar to the

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 3

	average of 5.92 months reported one year ago. This estimate seems reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History	Property tax records indicate that VMS National Properties is the current owner of record. The current owner acquired title to the property on February 6, 1985. No details pertaining the conveyance were provided to the appraisers. No conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.
Most Likely Buyer	National and regional investors and large local investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
	1.     buyer and seller are typically motivated;
	2.     both parties are well-informed or well advised, and acting in what they consider their best interests;
	3.     a reasonable time is allowed for exposure in the open market;
	4.     payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
	5.     the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 4

REGIONAL OVERVIEW

Introduction	Real estate values reflect the influence of four primary forces that motivate human activity; social trends, economic conditions, governmental policies and environmental factors. The purpose of the regional overview is to describe and analyze the area within which the interactions of the four major forces influence properties similar to the subject. This section will further analyze past trends for insight into possible future trends affecting the value of real estate.
Overview	The subject property is located in the Los Angeles MSA, within the city of Norwalk and approximately 17 miles southeast of the Los Angeles Central Business District. Los Angeles County, in which the subject is located, was the first to develop and has always been the largest of the five counties comprising the Los Angeles Metropolitan Area (LAMA). Los Angeles County’s population is 3.5 times the size of Orange County’s, the second largest county in the LAMA. It is 1.5 times the size of the other four counties in the region combined.
Population	The urbanized central and southern portions of Los Angeles County are nearly fully developed. Only the northern portion of the county has significant developable land remaining for future growth. However, these areas are separated from the urbanized areas by natural barriers. Most of the future growth in Orange County is expected to occur in the southeastern part of the county where there are large undeveloped tracts of land. Growth in older parts of both counties will be primarily in -fill of vacant parcels and redevelopment of older properties.
	During the period between 1970 and 1980, the county’s population grew at an average annual compound rate of 0.60%. This was slow compared to Orange County’s rate of 3.13% during the same decade. This was due to Los Angeles County’s already large size and Orange County’s appeal as an alternative residential area. During the 1980s the pace accelerated in Los Angeles County to 1.68% annual compound growth, while Orange County’s slowed to 2.23%. Both counties’ populations increased at slower rates of 1.13% and 1.61% annually between 1990 and 2000. However, this slowed growth still equated to an average annual population increase of 105,180 persons per year in Los Angeles County and 41,784 persons per year in Orange County.
	The slowing of the population growth rates has resulted from the growing scarcity of available land for new development in both counties. Population trends are summarized in the following table showing historical population growth. While the figures in the table are tabulated by the U.S. Census, according to the California Department of Finance the January 2006 populations for Los Angeles and Orange counties were 10,245,572 and 3,072,336 respectively. The figures show 2006 population increases of 0.78% and 0.83%, respectively, for the two

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 5

counties, which have decreased since 2002, although slightly higher than 2005 figures.

LOS ANGELES AND ORANGE COUNTIES POPULATION

	Los Angeles County					Orange County
Year	Population		Ann. Rate # Chg.			Population		Ann. Cpnd. Rate
U.S. Census — (As of April 1)
1970		7,041,980		—			1,420,386		—
1980		7,477,400		0.60	%		1,932,921		3.13	%
1990		8,832,500		1.68	%		2,410,556		2.23	%
2000		9,884,300		1.13	%		2,828,400		1.61	%
California Department of Finance — (As of January 1)
1997		9,147,100					2,672,800
1998		9,225,800		0.86	%		2,724,500		1.93	%
1999		9,330,100		1.13	%		2,776,100		1.89	%
2000		9,487,400		1.69	%		2,829,800		1.93	%
2001		9,646,300		1.67	%		2,880,600		1.80	%
2002		9,817,400		1.77	%		2,930,500		1.73	%
2003		9,979,600		1.65	%		2,978,800		1.65	%
2004		10,103,000		1.24	%		3,017,300		1.29	%
2005		10,166,417		0.63	%		3,047,054		0.99	%
2006		10,245,572		0.78	%		3,072,336		0.83	%

Employment and Industry	The sheer size of the five-county Los Angeles Metropolitan Area economy is its most important asset. As a country, the area would reportedly be ranked 11th in the world in terms of productivity and accounts for over 5% of jobs and spending nationally. Job growth from 1994 through 1999 outpaced the national average and in 2001 the region had approximately 1.4 million more jobs than in 1993 when the region’s employment was at its lowest point in recession of the early 1990’s. The Los Angeles region’s recovery has been led by motion picture production, foreign trade, and gains in older manufacturing sectors such as apparel, textiles, furniture, and toys.
	At the beginning of 2001, the U.S. and California economies were generally viewed as having slipped into recession. The mild economic downturn was compounded by the 9-11-01 event. However, in its 2002- 2003 Economic Forecast & Industry Outlook for the Los Angeles Five - County Area, the Los Angeles Economic Development Council (LAEDC) forecasted the five-county region to be minimally impacted by the recession in 2002, with recovery for the region, the state and the nation beginning late 2002.
	Economic reality has caused economists to revise their projections regarding the characteristics of the recovery and its timing. During 2002 and 2003, the overall economy, nationally and in California, experienced a “jobless recovery”, a recovery fueled by low interest rates and consumer spending, with increasing corporate profits but no or minimal job growth.
	In its mid-year 2004-2005 Economic Forecast, the LAEDC projected total Los Angeles County non-farm employment to grow by just 1.0% in 2004, but projected this would increase to 1.6% growth in 2005. In its

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 6

mid-year 2005-2006 Economic Forecast, the LAEDC projected total Los Angeles non-farm employment to again grow by just 1.0% in 2004 or by 40,500 jobs in Los Angeles County in 2005, and projected this would increase to 1.1% growth in 2006. It also forecasted all five counties in the Southern California region to have positive job growth in 2005 and 2006 as follows: Los Angeles — 1.0% and 1.1%, San Bernardino- Riverside — 3.0% and 3.0%, Orange — 1.9% and 1.8%, and San Diego — 1.7% and 1.8%. Year-to-date October 2005, Los Angeles County has gained 14,400 job growth.

LAEDC reports “there is much hand wringing about the weak non-farm employment performance of Los Angeles County. For example, the 2005 estimated average is 4,033,800 jobs, compared with the 2001 average of 4,135,700 jobs, which would be fifteen years of no job growth. However, total civilian employment should average 4,670,800 jobs in 2005, compared with the 2001 average of 4,259,700 jobs. The 2005 average is a new high for the county in this indicator. Many analysts feel that the civilian employment survey is not as accurate as the non-farm establishment survey due to the small sample size, but more people are working as independent contractors or in other ways that do not get captured by the establishment survey. A good case can be made that Los Angeles County is on the leading edge of this trend. Examples include the motion picture/TV production industry, software development, and the independent truck drivers who work at the ports. Anecdotal information also indicates that manufacturing and small contractors are using independent contractors.”

The agency notes in its 2006-2007 Economic Forecast and Industry Outlook for California and Southern California that in Los Angles County, positive economic forces for the county include:

•     Continued modest job growth in Aerospace.

•     Strong growth continuing for International Trade with an increase of 12% in two-way trade passing through the local customs district.

•     Tourism will continue running at high levels.

•     Professional and business services will see continued strong demand.

•     The technology sector should hold at high levels.

•     Major project construction will support the construction industry.

Negative economic forces for the county will include:

•     The movie industry will be coping with run-away production, challenges to the existing business models (particularly related to cost control), as well as possible labor strife over the next few years.

•     A lack of quality industrial space available for industrial growth with the countywide vacancy rate in the range of 2%.

•     The continued lack of affordable housing.

•     A modest slowdown in new home building.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 7

•     Not much improvement in the state’s business environment, which has already cost the county jobs, most notably with the departure of Nissan North America headquarters out of state.

The agency is projecting a 0.9% net gain in jobs in 2006, with the county’s unemployment rate continuing at a low rate in the range of 5.3%. By comparison, the 2006 rate of 4.5% was the lowest for the county since 1988.

LOS ANGELES COUNTY HISTORICAL JOB GROWTH

Category	1997			1998			1999			2000			2001			2002			2003			2004			2005			Aug-06
Mining		3,600			36,000			3,500			3,600			3,800			3,800			3,800			4,000			4,100			3,900
Construction		113,700			126,600			131,300			137,300			138,000			134,800			136,900			141,000			149,100			155,800
Manufacturing		641,100			636,000			620,000			604,600			550,400			522,400			488,800			478,200			473,700			465,800
Trade/Trans/Util		779,400			787,800			805,300			817,300			806,000			809,600			798,600			802,500			808,000			798,100
Information		220,400			223,000			239,100			249,000			217,700			197,900			206,600			203,200			216,900			211,800
Financial Activities		221,100			224,000			223,800			219,900			231,800			237,100			242,400			245,000			246,700			247,700
Professional & Business		578,500			592,500			608,300			610,500			583,600			575,700			560,400			570,500			573,600			582,600
Education & Health		384,600			397,600			410,100			423,000			447,000			463,000			472,400			476,600			483,700			468,000
Leisure & Hospitality		329,500			335,100			339,800			350,000			348,700			356,900			367,700			372,400			383,500			391,500
Other Services		131,700			136,100			137,200			140,600			143,400			146,600			145,000			144,900			146,300			148,900
Government		542,000			556,600			580,800			591,100			610,300			612,600			595,500			584,800			587,000			563,200
Total		3,945,600			4,051,300			4,099,200			4,146,900			4,080,700			4,060,400			4,018,100			4,023,100			4,072,600			4,037,300
Change		—			105,700			47,900			47,700			-66,200			-20,300			-42,300			5,000			49,500			-35,300
Unemployment		6.0	%		6.0	%		5.3	%		5.3	%		6.3	%		6.4	%		6.3	%		6.0	%		5.1	%		5.1	%
California		5.8	%		5.5	%		4.7	%		4.7	%		6.2	%		6.7	%		6.3	%		5.7	%		5.1	%		4.9	%
U.S.		4.7	%		4.4	%		4.0	%		4.0	%		5.7	%		6.0	%		5.7	%		5.4	%		4.9	%		4.6	%

Source: CA Employment Development Department

The following table summarized the major employers in Los Angeles County, sorted in alphabetical order by company name.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 8

MAJOR EMPLOYERS IN LOS ANGELES COUNTY

Employer Name	Location	Industry
Aerospace Corp.	El Segundo	Commercial Physical Research
American Honda Motor Con Inc.	Torrance	Automobile & Truck Broker
American Honda Motorcycle DIV	Torrance	Marketing Programs & Services
Amtrak	Los Angeles	Governmnet
California Institute of Technology	Pasadena	University
California State University	Long Beach	Recylcing Centers
Edison International	Rosemead	Utilities-Holding Company
Fox Films	Los Angeles	Television Station
Jet Propulsion Lab	Pasadena	Marketing Programs & Services
Kaiser Foundation Hospital	Los Angeles	Hospital
Kaiser Permanente	Los Angeles	Physicians & Surgeons
King Drew Medical Ctr.	Los Angeles	Hospital
Little CO of Mary Hospital	Torrance	Hospital
Lockheed Martin Aeronautics Co	Burbank	Aircraft Manufacturer
Long Beach Memorial Hospital	Long Beach	Hospital
Los Angeles County Medical Center	Los Angeles	Hospital
Memorial Rehabilitation Hospital	Long Beach	Rehabilitation Services
Six Flags	Valencia	Amusement Park
UCLA	Los Angeles	University
USC	Los Angeles	University
VA Greater Los Angeles	Los Angeles	Hospital
Walt Disney CO	Burbank	Motion Picture Producer & Studio
Westcoast	Carson	Marketing Programs & Services
Xerox Corp	El Segundo	Office Machiens NEC

Transportation	Transportation throughout Southern California is largely dependent on the private automobile, which is supplemented by local and county bus and rail services. One of the assets for Southern California, which has spurred its tremendous growth, has been its freeway system. The Southern California freeway system consists of 650 miles in six to twelve lanes of modern concrete roadways. The region is also well served with a modern system of surface streets.
	The LAMA is a classic example of the multiple nuclei theory of urbanization. Its formation into an urban conglomerate of multiple centers was facilitated by the proliferation of automobiles and the construction of numerous highways and interstate freeways. These are complemented by international and regional airports, the port facilities and rail lines conveniently situated throughout the region.
	While Los Angeles is served by all modes of transportation, the dominance of the highway system is evident. The basin is crisscrossed by interstate freeways connecting the area to all others areas of Southern California and the southwestern United States. Construction is on-going in the improvement of the system, with the expansion of the Orange County stretch of north-south Interstate 5 the current focus. In addition to the freeways, there is a large network of highways and thoroughfares providing surface road transport throughout the entire basin. The LAMA has become the transportation and distribution hub for the entire southwest U.S.
	Aside from the growing light-rail system, passenger and freight rail links are found throughout the Los Angeles-Orange County-San Diego area.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 9

	Connections provide service to other parts of the continental U.S. and Canada. The proximity of several international and regional airports and deep-water ports in the LAMA has been an important factor in the growth of international trade. Los Angeles International Airport is one of the busiest commercial airports in the United States. Twenty-three miles south of Downtown, the Los Angeles/Long Beach harbors provide sea transportation and cargo facilities, and combined represents the United State’s busiest port. Container volume continues to grow at these facilities. The proposed Alameda Corridor project, expected to be developed within a ten-year time span, will greatly improve access between the Los Angeles/Long Beach harbors and the railyards southeast of Downtown L.A. through a cooperative use of existing rail right-of- ways.
	Nonetheless, population growth within the region continues to burden the existing transportation infrastructure. The LAEDC reports that California’s budget problems will impact local governments, as will as transportation projects in the near term and as the region’s population continues to grow, the “transportation deficit” will worsen.
Foreign Trade	The combined Ports of Los Angeles and Long Beach represent the largest man-made facilities on the West Coast providing break-bulk, dry- bulk, general containerized, and liquid cargo shipping. These, combined with the Los Angeles and Ontario international airports and the John Wayne airport, handle one of the highest levels of freight volume in the world. In 1993 the LAMA region passed New York in trade goods volume as the largest in the nation. Together, the ports account for about 25% of all U.S. water-based trade. The following table shows historical port volume by physical cargo units.

HISTORICAL PORT CARGO VOLUME
(IN TEUs -equivalent to one 20-foot cargo container)

Year	Port of Los Angeles		Port of Long Beach		Total Containers		% Chg.
1995		2,500,000		2,843,502		5,343,502
1996		2,600,000		3,067,334		5,667,334		6.1	%
1997		2,900,000		3,504,603		6,404,603		13.0	%
1998		3,300,000		4,097,689		7,397,689		15.5	%
1999		3,828,850		4,408,480		8,237,330		11.4	%
2000		4,879,428		4,600,787		9,480,215		15.1	%
2001		5,183,519		4,462,959		9,646,478		1.8	%
2002		6,105,863		4,524,038		10,629,901		10.2	%
2003		7,178,940		4,658,124		11,837,064		11.4	%
2004		7,385,227		5,703,832		13,089,059		10.6	%
2005		7,484,624		6,774,690		14,259,314		8.9	%

The total dollar volume of trade through the Los Angeles Customs District has increased in every year since 1979. Los Angeles passed New York to retake the lead in foreign trade volume for the nation. The top five trade centers in 2003 were Los Angeles ($214.3 billion), New York ($209.8 billion), Detroit ($ 179.3 billion), Laredo (114.3 billion), and New Orleans ($87.7 billion). Excluding the peak recessionary year of 2001, Los Angeles county ports have had double-digit trade increases

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 10

	in every year from 1997 forward, with the exception of 2005, which took a dip to 8.9%.
	The growth in foreign trade supports job gains in professional services (like construction, design, and engineering), financial services, wholesale trade, manufacturing, and tourism and entertainment, according the Center for the Continuing Study of the California Economy.
Conclusion	The Los Angeles Metropolitan Area’s diversity and strength have acted as a magnet in attracting in-migration which, coupled with a steady natural increase, have created the second largest population center in the country. A possible impediment to future growth in the developed areas of the region is the capacity of the infrastructure. In many areas it has stressed by sustained population and economic growth. Some improvements to these systems have now commenced planning or construction.
	Notwithstanding the above, most economic forecasts predict strong population and economic growth for the region over the next decade. The economic base of the region has changed and diversified since the onset of the last recession. Declining industries have been replaced with growth industries. This change has been facilitated by the strong entrepreneurial approach to problem solving which is the character of the region.

NEIGHBORHOOD OVERVIEW

	The Appraisal of Real Estate defines a neighborhood as “a group of complimentary land uses”. A neighborhood should be distinguished from a district, which is defined as “a type of neighborhood that is characterized by homogenous land use”. A neighborhood will contain land uses complimentary to one another. For example, predominantly residential neighborhoods typically contain some commercial properties that provide services for local residents. The boundaries of a neighborhood can be physical such as a lake, stream or major highway or they may be less easily discernible such as changes in prevailing land use or occupant characteristics.
Location:	The subject property is located in the northwestern portion of the City of Norwalk, along Studebaker Road, between Firestone Boulevard and Imperial Highway. Norwalk is a city located in Los Angeles County, California.
	As of the 2000 census, the city of Norwalk had a total population of 103,298. It is located 17 miles southeast of downtown Los Angeles. Like much of Southern California, Norwalk went from a predominantly agricultural area at the end of World War II to a well-developed suburb

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 11

	of Los Angeles. Due to an influx of immigration from Mexico and other nations, the diversity of the city has increased. In the 1990s, Norwalk gained a significant Asian population from families priced out of wealthier neighboring Cerritos and communities in Orange County.
	Norwalk has extensive freeway links. The Santa Ana Freeway (I-5) and San Gabriel River Freeway (I-605) intersect at its northern edge, while the Century Freeway (I-105) terminates at the San Gabriel River Freeway at the city’s western edge. The Artesia Freeway (CA/SR-91) runs just south of the city’s southern border. Imperial Highway (CA/SR- 90) and Firestone Boulevard (CA/SR-42), two major east-west routes in southern Los Angeles County, intersect in the northwestern part of the city.
	Situated in close proximity to both Firestone Boulevard and Imperial Highway; east/west thoroughfares, the subject property is accessible to neighborhood services and employment centers. The location of the subject property is rated as good.
Access:	Primary roadways in the neighborhood include the east/west traffic arteries of Florence Avenue, Firestone Boulevard, Imperial Highway, Rosecrans Avenue and IH 105, and the north/south traffic arteries of Bell Flower Road, IH 605, Studebaker Road, IH 5 and Pioneer Boulevard. All of the aforementioned east/west roadways provide direct access to Studebaker Road as well as IH 605 and IH 5. IH 5 is approximately one mile east of the subject property and IH 605 is just two blocks west of the subject. IH 105 is approximately two blocks south of the subject property. The well-managed network of infrastructure renders good access to and within the neighborhood.
	The subject neighborhood is accessible to neighborhood services and employment centers. Numerous recreational parks, lakes, rivers and golf courses are located within a short commute of the subject neighborhood. Commercial and retail uses, local businesses and area employers are abundant along the three Interstates and Firestone Boulevard and Imperial Highway. Travel time to downtown Los Angeles, approximately 17 miles northwest, is around 30 minutes. Public services, including schools and medical facilities, are in close proximity.
Land Use:	The subject neighborhood is a mature commercial and residential district. The area realized much of its growth in the mid 1960’s and early 1970s. Most of the apartments in the area were built in the 1970s. As the City of Norwalk has become densely populated, most of the land in the subject neighborhood has been developed. Approximately 95% of the land area is developed with limited land available to accommodate additional development. Multifamily, single-family and commercial development is prevalent along the primary roadways. Underutilized land in the form of public green belts, parks, athletic fields and railroad easements are in close proximity to the subject property and scattered throughout the

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 12

	neighborhood. The predominate land uses in the neighborhood are both commercial and residential in nature and consist of both single and multifamily developments.
Adjacent Land Uses:	South:    Multifamily
	North:    Construction company, railroad tracks and self-storage
	East:      Bicycle shop and seminary
	West:     Costco retail store and public park
New Construction:	Due to the mature nature of the neighborhood and limited availability of vacant land suitable for development, no new construction was noted in the immediate vicinity of the subject property.
Change in Current Use	The neighborhood can be classified as being in a mature stage of its life cycle as there is limited land available to accommodate new development. As a result of its good location in the City of Norwalk, the area is anticipated to remain a desirable commercial and residential location. No material change in existing land uses is anticipated.
Conclusion	The property is located in the northwestern portion of the city of Norwalk. The area is easily accessible from all parts of Norwalk as well as cities from beyond due to its proximity to three interstate freeways. As a result of its good location, the area has proven to be a desirable residential and commercial location. Employers are located in close proximity to the subject neighborhood. The presence of employers in the area as well as has enhanced the desirability of the neighborhood as a residential location. Area residents are offered a broad range of services and excellent access to other parts of Norwalk and greater Los Angeles area.

SITE ANALYSIS

Location	The subject property is located in the northwestern portion of the City of Norwalk, along Studebaker Road, between Firestone Boulevard and Imperial Highway.
Size	The site is irregular in shape and consists of a total land area of 5.47± acres.
Excess Land	None
Topography	Generally level and on grade with the bounding street of Studebaker Road
Site Improvements	The 5.47± acre site is improved with a 144-unit garden-style apartment community known as the Casa De Monterey Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	Studebaker Road is a neighborhood collector street that is oriented in a north/south direction.
Desirability of Location	Good
Access to Major Arteries	Average
Access to Local Arteries	Average

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 13

Curb Appeal	Average
Ingress/Egress	Average — Adequate road frontage along a minor neighborhood collector street.
Visibility from Road	Average
Public Transportation	Average
Neighborhood Appearance	Average
Flood Zone Map	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone C, an area outside any special flood hazard areas as defined by FEMA.
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property which would disclose any land use restrictions which may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Conclusion	The subject represents a desirable site for multifamily development.

REAL ESTATE TAXES

Assessor’s Parcel No:	8021-030-010 (Los Angeles County Assessor)
Effective tax rate	1.2784965 per $100 of assessed value
Equalization Rate	Assessed values for real property in Los Angeles County are based on 100% of the market value estimated for the property by the county assessor.
2005-2006 Assessed Value	$9,000,259
Tax Analysis:	The subject property is situated within the taxing jurisdictions of the City of Norwalk, Los Angeles County, Unified Schools, Community College, Flood Control, Metro Water District and a General Tax Levy. The Los Angeles County Property Appraiser assesses the property for all of the applicable taxing jurisdictions.
	The subject property is under the taxing jurisdiction of Los Angeles County. The Proposition 13 Amendment to the California State

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 14

Constitution limits the maximum annual tax on real property to one percent of market value plus an additional sum to pay for bonded indebtedness on affected property. Per Proposition 13, properties are only reassessed upon sale or significant improvement. Between these events, the assessed value may be increased by a maximum of 2.0% per year. For the purposes of this report, the assessed value is based on an assumed sale at our concluded market value. Our estimates of property taxes used in the direct capitalization method assumes a sale of the subject property at our market value conclusion and the above effective tax rate.

Estimated Tax Liability

$230,000 (Concluded value of $18,200,000 multiplied by an approximate 1.28 effective tax rate)

ZONING

Zoning:	The site is zoned R-3 (Multiple-Family High Density Residential Zone) by the City of Norwalk.
Permitted Use	The intended use of land in the R-3 Zone is multifamily residential development. Other allowed uses include playgrounds and parks, churches, educational institutions, public service structures and mortuaries. The R-3 designation shall have a maximum density of 22 units per acre.
Maximum Height:	2.5 stories or 35 feet
Set Backs:	Front Yard — 15 feet
	Side yards — 3 feet
	Rear Yard — 20 feet
Area	Minimum of 5,000 square feet
Parking Requirements:	No requirement
Landscaping:	20% of the developed site.
Comments:	It appears as though the existing improvements represent a non- conforming use of the site with regard to zoning, in that its developed density exceeds the allowed density.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Page 15

DESCRIPTION OF IMPROVEMENTS

The subject improvements consist of a 144-unit garden-style apartment complex known as the Casa De Monterey Apartments. The following offers a description of the improvements.

KTR Site Inspector:	Charles K. Russell
Date of Inspection:	November 18, 2006
Property Contact:	Renee Correia — On-site Manager
Year Built:	1970
Number Units:	144
Configuration/Stories:	Garden-style complex, two-story residential structures
Net Rentable Area:	107,744 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls:	Stucco and wood siding
Roof:	Flat with a built-up cover
Doors and Windows:	Exterior entrance doors are solid core wood. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Interior wall mounted electric AC condensing units, heat provided by a gas-fired boiler system.
Plumbing:	Kitchens contain sink and disposal and dishwashers in select units. Bathrooms contain porcelain toilet and sink and combination fiberglass bathtub/shower insert. Hot water is provided by a central gas-fired boiler system.
Electrical:	Property is sub-metered for electric. Electricity is paid by the tenant.
Parking and Walkways:	The parking areas and internal roadways are asphalt paved. The streets and parking areas have concrete curbs. Walkways are concrete paved. There is adequate on-site parking provided.
INTERIOR
Walls and Ceilings:	Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over padding and sheet vinyl in living areas, carpet over padding in bedrooms and sheet vinyl in the kitchens and bathroom.
Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and stainless steel sink. Appliances include a combination gas range/oven, exhaust fan, disposal and dishwasher in select units.
PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes (2)
Fitness Center:	No
Clubroom:	No
Tennis Court:	No
Basketball Court:	No
On-site Management Office:	Yes
Laundry Room:	Yes (3)

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 16

Microwave:	No
Compactor:	No
Fireplace:	No
Ceiling Fans:	In living area
Cable TV:	Yes (prewire)
Balconies/Patios:	Yes
Perimeter Fencing:	Yes
Access Controlled Entry:	Yes
Other:	Covered parking, children’s playground

The following chart illustrates the property’s unit breakdown and size.

CASA DE MONTEREY APARTMENTS – UNIT MIX

Unit Type	No. of units		Size (SF)		Total (SF)
1BR/1BA		112		688		77,056
2BR/2BA		32		959		30,688
Totals/Average		144		748		107,744

CONDITION/MAINTENANCE

Overall Condition:	Average
Landscaping:	Average
Parking:	Adequate
Sidewalks/Curbs:	Average
Walls/Fences:	Average
Refuse Area:	Average
Basement:	N/A
Health Club:	N/A
Club Room:	N/A
Exterior Walls:	Average
Roofs:	Average
Stairs:	Average
Lobby/Hallways:	Average
Entry Doors:	Average
Patios/Balconies:	Average
Elevators:	N/A
Apartment Interiors:
Overall:	Average
Kitchen Equipment:	Average
Mechanical Equipment:	Average
Bathroom:	Average
Walls/Ceilings:	Average
Layout:	Average
Light and View Quality:	Average
Cosmetic Repairs:	Our physical inspection revealed that the subject property is in average condition.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 17

Deferred Maintenance:	No material elements of deferred maintenance were noted during the appraiser’s inspection of the property and on-site management reported none.
Comparability:	Similar to competing properties of the same vintage.
Observed Effective Age:	25 years (lower than the actual age of the improvements due to adequate upkeep and maintenance of the improvements)
Economic Life:	45 years (per Marshall Valuation Service Manuel)
Remaining Economic Life:	20 years
General Comments:	Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

APARTMENT MARKET OVERVIEW

The following apartment market analysis is designed to provide the reader an understanding of the Los Angeles area apartment market and its direct influence on the subject’s L.A. south market. The most recent source of data available to the appraisers was the “Hendricks & Partners Apartment Update 2006-Review”, the third quarter 2006 REALFACTS Apartment Vacancy/Rent Survey for the Los Angeles County apartment market and the “Apartment Research Report-October 2006”, prepared by Marcus & Millichap.

LOS ANGELES COUNTY APARTMENT MARKET

Overview

The Los Angeles apartment market was ranked 5th in the nation out of 37 markets nationally in 2005 and into 2006, down from rank No. 3 in 2004, and No. 2 in 2003, by Marcus & Millichap, a national brokerage firm specializing in apartment investment sales.

Most economic reports project that long-term job growth in the Los Angeles area should be in the range of 40,000 to 80,000 per year. The Los Angeles Economic Development Council reports a growth of 50,800 new jobs in the Los Angeles area over the year ending June 2006, equating to a gain of 1.3%. According to recent forecasts, trade and tourism are set for record years in 2006. The number of overnight visitors to the region is expected to hit an all-time high of 25.7 million, up 32% from 2005. The regions growth is fueling continued demand for apartments. However, a shortage of developable land, high land prices and rising construction costs are formidable challenges for developers. Generally, demand for one rental unit is generated by the creation of six jobs. Based on this ratio, demand for roughly 7,000 to 13,000 new units per year would be required to meet annual demand. Marcus & Millichap reports 5,000 to 6,000 units each year will be added in the foreseeable future. Of the 5,000 units completed in 2005, roughly one-third were luxury apartments built in the Downtown submarket. Completions will increase slightly this year, as developers deliver 5,100 units. While the total this year is up from 2005, it represents a minor 0.7% addition to existing apartment inventory. Clearly, 5,000 to 6,000 new apartment

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 18

units per year are not nearly enough to meet the demand created by the roughly 120,000 new residents to the county each year.

Home price appreciation moderated across the L.A. area in 2006 as affordability waned and interest rates began to tick up. Sales of existing homes fell 14% in the first half of the year compared to a year prior. For the year ending June 2006, the median home price gained a moderate 12%, down from the appreciation levels of more than 15% a year ago and nearly 32% in 2004. Although price appreciation has slowed, home purchases remain out of reach for many residents, expanding the renter pool and forcing many to remain in the rental market for the foreseeable future. Consequently, vacancy rates are expected to end the year at 3%, 10 basis points lower than the rate at the end of 2005. Tight market conditions are allowing owners to raise rents at an accelerated pace. By year end, the average asking rent is expected to reach $1,360 per month, up 6.7% from 2005, while the average effective rent posts a similar gain to $1,320 per month.

Approximately 1,700 units came online during the first half of 2006, with completions expected to accelerate in the second half of the year. In addition, roughly 15,000 units are in various stages of planning. There are currently 6,700 apartments under construction in Los Angeles County, with 3,400 units scheduled for completion by year end. The majority of new development is centered in downtown Los Angeles, with 2,000 units under development, accounting for almost 30% of total construction.

With construction and absorption keeping pace with one another, the average apartment vacancy rate is expected to end the year at 3%.

LOS ANGELES COUNTY
APARTMENT MARKET CHARACTERISTICS

Number of Complexes		539
Total Unit Inventory		127,512
Avg. Year Built		1978
Avg. No. Units Per Complex		236
Avg. Occupancy Rate		96.0	%
Avg. Rent/Unit/Month	$	1,559

Source: RealFacts, 4Q’05

The following table shows the historical apartment rent growth by unit type and total market occupancy rates for Los Angeles County.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 19

LOS ANGELES COUNTY HISTORICAL RENT AND OCCUPANCY TREND

																												4 Yr.
Unit Type	1998			1999			2000			2001			2002			2003			2004			2005			2006			Change
Studio	$	697		$	733		$	822		$	894		$	929		$	951		$	992		$	1,054		$	1,139			22.6	%
Jr. 1/1	$	670		$	713		$	813		$	879		$	1,010		$	1,116		$	1,163		$	1,188		$	1,248			23.6	%
1/1	$	840		$	894		$	1,008		$	1,087		$	1,135		$	1,186		$	1,240		$	1,305		$	1,395			22.9	%
2/1	$	787		$	834		$	919		$	1,029		$	1,103		$	1,148		$	1,205		$	1,262		$	1,332			20.8	%
2/2	$	1,095		$	1,145		$	1,281		$	1,401		$	1,456		$	1,530		$	1,597		$	1,688		$	1,794			23.2	%
2 TH	$	1,141		$	1,282		$	1,406		$	1,514		$	1,595		$	1,663		$	1,583		$	1,666		$	1,760			10.4	%
3/2	$	1,225		$	1,297		$	1,405		$	1,528		$	1,628		$	1,685		$	1,729		$	1,818		$	1,949			19.7	%
3 TH	$	1,601		$	1,787		$	1,996		$	2,118		$	2,152		$	2,083		$	2,056		$	2,319		$	2,361			9.7	%
Wtg. Avg.	$	938		$	995		$	1,110		$	1,205		$	1,268		$	1,327		$	1,382		$	1,465		$	1,559			22.9	%
Occupancy		96.3	%		97.3	%		97.5	%		96.4	%		95.4	%		95.3	%		95.2	%		95.9	%		96.0	%		0.8	%

Source: RealFacts

The data shows the consistent strength of the county apartment market with a high average occupancy over 95% for the last eight years. Rent growth also averaged a four year change of 22.9%

The following table shows the Los Angeles County trend in apartment rents and occupancy quarter-by-quarter over the last 24 months. This data gives a more detailed look at recent market trends. This data indicates the county apartment market vacancy has fallen in a narrow range from the third quarter of 2004 to the third quarter of 2006, and market rental rates have increased 8.4% over the last year.

LOS ANGELES COUNTY RECENT RENT AND OCCUPANCY TREND

																												Prev. Yr.
Unit Type	3Q ‘04			4Q ‘04			1Q ‘05			2Q ‘05			3Q ‘05			4Q ‘05			1Q ‘06			2Q ‘06			3Q ‘06			% Chg.
0/1	$	995		$	1,004		$	1,023		$	1,054		$	1,056		$	1,084		$	1,116		$	1,135		$	1,166			10.4	%
Jr. 1/1	$	1,175		$	1,143		$	1,149		$	1,184		$	1,209		$	1,211		$	1,233		$	1,233		$	1,280			5.8	%
1/1	$	1,252		$	1,265		$	1,277		$	1,297		$	1,313		$	1,335		$	1,362		$	1,393		$	1,430			8.9	%
2/1	$	1,218		$	1,221		$	1,231		$	1,256		$	1,274		$	1,287		$	1,320		$	1,324		$	1,353			6.2	%
2/2	$	1,613		$	1,629		$	1,656		$	1,667		$	1,696		$	1,733		$	1,756		$	1,789		$	1,835			8.2	%
2 TH	$	1,568		$	1,580		$	1,631		$	1,667		$	1,669		$	1,698		$	1,738		$	1,770		$	1,773			6.2	%
3/2	$	1,746		$	1,757		$	1,791		$	1,815		$	1,828		$	1,838		$	1,861		$	1,973		$	2,013			10.1	%
3 TH	$	2,009		$	2,017		$	2,320		$	2,341		$	2,288		$	2,325		$	2,371		$	2,362		$	2,350			2.7	%
Wtg. Avg.	$	1,392		$	1,407		$	1,435		$	1,455		$	1,472		$	1,498		$	1,525		$	1,556		$	1,595			8.4	%
Occupancy		95.2	%		95.8	%		95.3	%		95.5	%		96.7	%		95.9	%		96.0	%		95.7	%		96.2	%		-0.5	%

Source: RealFacts

The L.A. South market, in which the subject property resides, saw a lack of new rental product in the area, coupled with competition from home and condo sales, which pushed absorption into negative territory of minus 47 units in the second quarter of 2006, compared to net move-outs of 162 units one year ago.

No new units entered lease-up during the second quarter, as was the case a year ago. A 104-unit property is expected to begin construction before the end of the year in Downtown Long Beach. Other units have been proposed, but have yet to materialize.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 20

Multifamily permits, including rental and for-sale units, declined to 214 units in the second quarter from 290 units one year earlier. Most of the development activity in L.A. South is centered on for-sale condominium and town home development.

With condo conversions and positive absorption in the first quarter, the average apartment vacancy rate decreased from 4.4% in the second quarter of 2005 to 4.0% in the second quarter of 2006.

Rent growth increased to 4.8% for the year ended June 2006, compared to a gain of 6.8% a year ago.

L.A. SOUTH 2006 SECOND QUARTER VACANCY & RENT

							Avg. Rent			Avg. Rent			Avg. Rent		Avg. Rent
Submarket	Vacancy 2006			Vacancy 2005			Increase 2006			Increase 2005			2006		2005
Northern Cities		3.2	%		2.1	%		4.6	%		2.0	%	$	1,061	$	1,014
Whittier/La Mirada		1.3	%		3.7	%		6.6	%		8.3	%	$	1,195	$	1,121
Central Cities		2.6	%		3.7	%		6.7	%		5.0	%	$	1,220	$	1,144
Compton/Carson		3.5	%		4.4	%		2.0	%		7.6	%	$	926	$	907
Long Beach/ Lakewood		4.7	%		5.2	%		4.8	%		10.0	%	$	1,316	$	1,256
Peninsula/Harbor		6.1	%		6.4	%		1.2	%		2.0	%	$	1,659	$	1,640
San Gabriel Valley		4.1	%		4.1	%		5.0	%		6.1	%	$	1,268	$	1,207
Totals		4.0	%		4.4	%		4.8	%		6.8	%	$	1,274	$	1,216

Conclusion The overall Los Angeles area’s economy should continue to post solid employment and population growth over the coming years. The subject’s L.A. South market area seems to be at a similar level of occupancy but lower level of rent than the overall Los Angeles area. As demand and new construction in the L.A. South market continue to be on an equal par, occupancy is anticipated to remain high over the coming year. As occupancy levels continue to be high, concessions will likely continue to be nonexistent. The remainder of the Los Angeles area has seen an increase in apartment development, attempting to keep up with job and demand growth.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 21

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Rent Comparable #1

Address:	Porto Bello Apartments
	10853 Firestone Boulevard.
	Norwalk, California
Number of Units:	104
Year Built:	1979
Description:	Garden-style apartments with two-story residential buildings. Stucco exterior walls, flat roofs with built-up covers and asphalt-paved parking area.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, internet access, laundry facility and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit	Quoted Rent/SF
1BR/1BA		625	$1,075 (avg)	$	1.72
Totals/Average		625	$1,075 (avg)	$	1.72

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is located 1/4 mile northwest of the subject property. It is similar to the subject property in terms of location, age and physical characteristics.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 22

Rent Comparable #2

Address:	The Courtyards/Coral Gates
	12401 Studebaker Road
	Norwalk, California
Number of Units:	130 (not including three bedroom units)
Year Built:	1977
Description:	Garden-style apartments with two-story residential buildings. Stucco exterior walls, flat roofs with built-up covers and asphalt-paved parking area.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, fitness center, controlled access, laundry facility and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		605	$	1,020	$	1.69
2BR/1BA		900	$	1,375	$	1.53
Totals/Average		753	$	1,198	$	1.61

Occupancy:	96%
Concessions:	No concessions at this time
Comments:	This property is adjacent south of the subject property. It is similar to the subject property in terms of location, age and physical characteristics.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 23

Rent Comparable #3

Address:	Park Regency Club
	10000 East Imperial Highway
	Downey, California
Number of Units:	460
Age:	1976
Description:	Garden-style apartments with three-story residential buildings. Stucco exterior walls, flat roofs with built-up covers and asphalt-paved parking area.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, spa, fitness center, business center, clubhouse and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		640	$	1,065	$	1.66
2BR/2BA		900	$	1,580	$	1.76
Totals/Average		770	$	1,323	$	1.71

Occupancy:	97%
Concessions:	No concessions at this time
Comments:	This property is located approximately one mile southwest of the subject property. It is superior to the subject property in terms of amenities and physical characteristics.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 24

Rent Comparable #4

Address	Imperial Palms
	1717 Welch Street
	Norwalk, California
Number of Units:	64
Age:	1977
Description:	Garden-style apartments with three-story residential buildings. Stucco exterior walls, flat roofs with built-up covers and asphalt-paved parking area.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds and ceiling fans. Property features include swimming pool, picnic area, playground area and laundry facility.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		650	$	985	$	1.51
Totals/Average		650	$	985	$	1.51

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is situated approximately 1/4 mile southeast of the subject property in a similar location along a heavily traveled roadway. It is rated as being inferior to the subject in terms of amenities and overall appearance.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 25

Rent Comparable #5

Address:	Villa Del Sol Apartments
	11217 Barnwall Street
	Norwalk, California
Number of Units:	116
Year Built:	1977
Description:	Garden-style apartments with three-story residential buildings. Stucco exterior walls, flat built-up roofs and asphalt-paved parking area.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds and ceiling fans. Property features include swimming pool, controlled access, patio/balcony, covered parking and laundry facility.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1.5BA		860	$	1,389	$	1.62
Totals/Average		860	$	1,389	$	1.62

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is situated two miles southeast of the subject property. It is similar to the subject property in terms of age and physical characteristics.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 26

ANALYSIS

The subject property is situated in a good Norwalk location along Studebaker Road, between Firestone Boulevard and Imperial Highway. It is competitive with other properties in terms of location, condition, amenities, and unit size. The tables below illustrate the comparables with the most similar floor plans in relation to the subject’s floor plans.

ONE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		688	$	1,097	$	1.59
Porto Bello		625	$	1,075	$	1.72
The Courtyards		605	$	1,020	$	1.69
Park Regency Club		640	$	1,065	$	1.66
Imperial Palms		650	$	985	$	1.51

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		959	$	1,549	$	1.62
The Courtyards		900	$	1,375	$	1.53
Park Regency Club		900	$	1,580	$	1.76
Vista Del Sol		860	$	1,389	$	1.62

The subject is most similar to The Courtyards and Vista del Sol in terms of location, amenities and physical attributes and slightly inferior to Porto Bello and Park Regency Club. The Imperial Palms property is inferior in terms of amenities and overall appearance. In general, the subject’s rental rates should be aligned below the rents indicated by Porto Bello and Park Regency Club, above the rents indicated by Imperial Palms and generally similar to rents indicated by The Courtyards and Vista Del Sol.

As indicated above, the rent (on a per square foot basis) for the subject’s one-bedroom floor plans are within a tolerable variance of the range of rents illustrated by The Courtyards and the superior Park Regency Club. Its rental rate structure is appropriately aligned below the rent illustrated by the superior Porto Bello and above the inferior Imperial Palms property.

The quoted rents for the subject’s two-bedroom units are within a tolerable variance of the range of rents illustrated by The Courtyards and Vista Del Sol. Its rental rate structure is appropriately aligned below the rent illustrated by the superior Park Regency Club.

Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property.

ECONOMIC RENT POTENTIAL-CASA DE MONTEREY APARTMENTS

			Size						Economic		Total
Unit Type	Mix		(SF)		Total Area		Economic Rent/Unit		Rent/SF		Rent
1BR/1BA		112		688		77,056	$	1,097	$	1.59	$	122,864
2BR/2BA		32		959		30,688	$	1,549	$	1.62	$	49,568
Totals/Average		144		748		107,744	$	1,197	$	1.60	$	172,432

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 27

HIGHEST AND BEST USE

According to the Third Edition of The Dictionary of Real Estate Appraisal, published by the Appraisal Institute, highest and best use is defined as:

“the reasonably probable and legal use of vacant land or an improved property; which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability”.

HIGHEST AND BEST USE AS IF VACANT

Surrounding Land Uses	Equally divided between commercial, single-family and multi-family developments along Studebaker Drive, Firestone Boulevard and Imperial Highway. A multifamily development exists adjacent south of the subject site.
Physically Possible	The size and accessibility of the site would allow for most development. However, development intensity would be restricted by the subject property’s location, along Studebaker Road, a lightly traveled neighborhood collector street that can only handle a limited level of vehicular traffic. The majority of high intensity retail and commercial uses in the neighborhood are situated at major intersections. Given the site’s secondary location, high intensity retail use is not indicated. Of the potential legal uses, multifamily use would appear to be the most appropriate.
Legally Permissible	Multifamily use is the intended use of the site.
Financial Feasible	The determination of financial feasibility is dependent primarily on demand. The immediate market exhibits strong demand characteristics as evidenced by stable rental rates, high occupancy levels and the lack of rent concessions in competing apartment projects. New apartment construction is occurring in various areas throughout the Los Angeles area indicating that financial feasibility exists to warrant the cost of such construction. New apartment development is considered to be financially feasible at this time.
Conclusion	Based on the three criteria previously discussed, the maximally profitable use of the site would be multifamily residential development.
HIGHEST AND BEST USE AS IMPROVED
Current Improvements	144-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 28

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of nontypical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the Norwalk/Los Angeles area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 29

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $172,432. The annual gross rent potential estimated for the apartment units total $2,069,184

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease ranges from 3.4% in 2005, 6.9% in 2004 and 4.1% in 2003. Annualized 2006 loss to lease is 5.9%. Based on the previous history at the subject property, we have deducted a loss to lease expense of 5.0% of the potential gross income or $103,459.

Concessions: Rent concessions in the market are minimal or non existent at area apartments. Traditional apartment concessions consist of reduced or free rent over a portion of the lease term. As a percentage of the property’s gross rent potential, concessions amounted to 0.2% in 2003 and 2004, increasing to 0.9% in 2005. Concessions equate to 0.6% in 2006 on an annualized basis. For our analysis, concessions are projected at 0.5% of the estimated gross rent potential or $10,346.

Vacancy and Credit Loss: As of the date of inspection, the subject property was approximately 93% occupied. On site management indicated that the property generally maintains an occupancy in the mid 90% range. The properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 96% to 98%. The average occupancy of the income comparables surveyed equates to approximately 97%. Information presented in the Apartment Market Overview section of this report indicates that the average occupancy for properties within the Los

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 30

Angeles area is approximately 96%, an amount similar to the estimated average occupancy produced by primary comparables in the immediate area of the subject property.

As indicated in the Economic Rent Analysis section of this report, the quoted rent structure for the subject property seems to be market oriented based on a review of the comparable rentals in the area. It appears as though the subject’s occupancy level is lower than those levels realized by competing properties. According to on-site management, this is primarily due to the loss of occupied corporate units and not a result of its rent structure.

Historically, vacancy and credit loss at the subject property has been above the market standard. Vacancy and credit loss was 8.6% in 2003, 11.8% in 2004 and 11.0% in 2005. Annualized 2006 vacancy and credit loss is 6.3%. For our analysis, vacancy and credit loss will be inline with the property’s annualized 2006 figure.

Based on the subject’s Annualized 2006 numbers and current level of occupancy, tempered against the average occupancy reported by competing properties in the influencing area and occupancy level indicated for properties in the Los Angeles area, a vacancy factor of 6.0% is estimated for the subject property. In addition, a 1.0% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 7.0%.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Total utility income in 2003 was $52,829, increasing to $72,180 in 2004 and dropping to $61,055 in 2005. Annualized 2006 utility income is $69,661. Based on the historical and annualized utility income receipts, we have estimated Utility Income to be $68,400 or $475 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts range from 3.7% to 6.8%. Other income is annualized at 4.2% for 2006. Based on historical and annualized 2006 data, we have estimated Other Income to be approximately 4.3% of the gross rent potential or $86,400.

Expenses: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed. The annualized expenses for 2006 have also been considered. Typical operating expenses for garden apartments in the Norwalk/Los Angeles area, as reported by IREM have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property and outlines the operating budget for the current year.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 31

SUMMARY OF OPERATING HISTORY — CASA DE MONTEREY APARTMENTS

	2003						2004						2005						Annualized 2006 (Thru October)
Item	Actual			Per Unit			Actual			Per Unit			Total			Per Unit			YTD			Annualized			Per Unit
Gross Rent Potential	$	1,648,672		$	11,449		$	1,782,242		$	12,377		$	1,827,868		$	12,694		$	1,698,271		$	2,037,925		$	14,152
Loss to Lease	($	67,360	)	($	468	)	($	123,480	)	($	858	)	($	61,986	)	($	430	)	($	100,752	)	($	120,902	)	($	840	)
Concessions	($	4,062	)	($	28	)	($	3,606	)	($	25	)	($	17,312	)	($	120	)	($	9,854	)	($	11,825	)	($	82	)
Vacancy/Credit Loss	($	141,597	)	($	983	)	($	210,837	)	($	1,464	)	($	200,732	)	($	1,394	)	($	107,525	)	($	129,030	)	($	896	)
Utility Income	$	52,829		$	367		$	72,180		$	501		$	61,055		$	424		$	58,051		$	69,661		$	484
Other Income	$	112,456		$	781		$	103,622		$	720		$	68,155		$	473		$	71,533		$	85,840		$	596
Effective Gross Income	$	1,600,938		$	11,118		$	1,620,121		$	11,251		$	1,677,048		$	11,646		$	1,609,724		$	1,931,669		$	13,414
Utilities	$	116,094		$	806		$	104,857		$	728		$	145,166		$	1,008		$	112,522		$	135,026		$	938
Repairs & Maintenance	$	138,942		$	965		$	187,788		$	1,304		$	174,947		$	1,215		$	129,668		$	155,602		$	1,081
Administrative	$	40,736		$	283		$	65,943		$	458		$	45,202		$	314		$	35,611		$	42,733		$	297
Marketing	$	44,444		$	309		$	52,833		$	367		$	54,594		$	379		$	62,138		$	74,566		$	518
Payroll	$	131,543		$	913		$	117,492		$	816		$	123,650		$	859		$	116,407		$	139,688		$	970
Management	$	68,568		$	476		$	71,255		$	495		$	75,688		$	526		$	68,568		$	82,282		$	571
Insurance	$	52,598		$	365		$	53,390		$	371		$	52,860		$	367		$	53,350		$	64,020		$	445
Real Estate Taxes	$	101,095		$	702		$	107,718		$	748		$	111,078		$	771		$	95,094		$	95,094		$	660
Total Expenses	$	694,020		$	4,820		$	761,276		$	5,287		$	783,185		$	5,439		$	673,358		$	808,030		$	5,611
Net Operating Income	$	906,918		$	6,298		$	858,845		$	5,964		$	893,863		$	6,207		$	936,366		$	1,123,639		$	7,803

Utilities	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject’s historical utilities expense ranges from a low of $728 per unit in 2004 to a high of $1,008 per unit in 2005. An amount equivalent to $938 per unit is reflected in annualized 2006. Based on historical expenditures, the annualized 2006 amount appears to be in line. Utilities are processed at $950 per unit or $136,800.
Repair & Maintenance:	This category includes general repair and maintenance items, contract services and turnover expenses. The subject’s historical repair and maintenance expense ranges from a low of $965 per unit in 2003 to a high of $1,304 per unit in 2004. An amount equivalent to $1,081 per unit is reflected in 2006 (Annualized). Review of operating expenses incurred by similar apartment properties in the Los Angeles area indicates that the subject’s rent repairs and maintenance expenditures are above typical market standards. Tempering the subject’s operating history by market standards, the repairs and maintenance expense is estimated at $1,000 per unit or $144,000.
Administrative	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense ranges from a low of $283 per unit in 2003 to a high of $458 per unit in 2004. An amount equivalent to $297 per unit is reflected in 2006 (Annualized). Administrative expenses are projected at $300 per unit or $43,200.
Marketing	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense ranges from a low of $309 per unit in 2003 to a high of $379 per unit in 2005. An amount

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 32

	equivalent to $518 per unit is annualized for 2006. Marketing expenses are projected at $375 per unit or $54,000.
Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject’s historical payroll expense ranges from a low of $816 per unit in 2004 to a high of $913 per unit in 2003. An amount equivalent to $970 per unit is reflected in 2006 (Annualized). Payroll expenses are projected at $900 per unit or $129,600.
Management	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.3% of Effective Gross Income. A market-oriented fee of 4.0% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject’s management fee is estimated to be $78,613, or $546 per unit.
Insurance	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance expense ranges from a low of $365 per unit in 2003 to a high of $371 per unit in 2004. An amount equivalent to $445 per unit is reflected in 2006 (annualized). Insurance expenses are projected at $365 per unit or $52,560.
Taxes	As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $230,000 or $1,597 per unit.
Reserves for Replacements	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Given the age of the subject property, a reserve for replacement allowance aligned with the higher end of the range of $350 per unit or $50,400 is estimated for the subject property.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provide a return on owner’s equity. We have estimated the NOI to be $1,046,163. The subject’s income and expense pro forma is summarized below.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 33

OPERATING PRO FORMA

Gross Potential Rent	$	2,069,184		$	14,369
Loss to Lease	($	103,459	)	($	718	)
Concessions	($	10,346	)	($	72	)
Vacancy/Credit Loss	($	144,843	)	($	1,006	)
Utility Income	$	68,400		$	475
Other Income	$	86,400		$	600
Effective Gross Income	$	1,965,336		$	13,648
Utilities	$	136,800		$	950
Repairs & Maintenance	$	144,000		$	1,000
Administrative	$	43,200		$	300
Marketing	$	54,000		$	375
Payroll	$	129,600		$	900
Management	$	78,613		$	546
Insurance	$	52,560		$	365
Real Estate Taxes	$	230,000		$	1,635
Reserves	$	50,400		$	350
Total Expenses	$	919,173		$	6,421
Net Operating Income	$	1,046,163		$	7,265

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.
Market Extraction	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

SUMMARY OF MARKET DERIVED OVERALL RATES

	Sale 1	Sale 2	Sale 3	Sale 4	Sale 5
Name	Montrose Manor	Del Prado	Sonterra	Rosemead Garden	Tuscany Villa
Sale Date	Sept-06	Jun-06	Nov-05	Sept-05	Jul-05
Cap Rate (OAR)	5.8%	5.9%	5.4%	5.5%	5.6%

The sales exhibit overall rates that fall within a range from 5.4% to 5.9% and produce an average of 5.6%. The sales represent recent transactions of late 1960s to mid 1970s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are situated in Los Angeles area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 34

	indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate in the range of 5.5% to 6.0% or approximately 5.75% is suggested.
Survey of Investors	The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the Third Quarter 2006` Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. According to the same survey, non-institutional grade properties exhibit a range of cap rates of 4.60% to 10.50% with an average of 7.12%. Capitalization rates in the Los Angeles area are generally aligned with the low end of the survey range and below the national average. The rates produced by the sales outlined above are appropriately aligned with the low end of the survey range.
Conclusion	The sales exhibit overall rates that range from 5.4% to 5.9% and produce an average of 5.6%. Based on the indicators exhibited by the sales data and confirmed through review of investor surveys, an appropriate cap rate for the subject property is concluded to be 5.75%.

Valuation: Capitalizing the estimated Net Operating Income of $1,046,163 by a 5.75% rate results in a value conclusion of $18,200,000, rounded ($1,046,163 NOI ÷ 5.75% OAR = $18,194,139).

Final Value:                                                                      $18,200,000

THE SALES COMPARISON APPROACH

The Sales Comparison Approach is an estimate of value derived from a sales comparison with similar type properties. This method directly reflects the actions of buyers and sellers in the marketplace. Substitution is the underlying principle affecting the choice of buyers and sellers, and which implies that a prudent person will not pay more to buy a property than it would cost to buy a comparable substitute property. The price a typical purchaser pays is usually the result of a comparison process of various alternatives.

The sales data is analyzed and compared to the subject for such items as time, location, size, amenities and condition. Adjustments for differences are made where appropriate and so indicated by the market. The process develops an indication of what the selected comparables would have sold for had they possessed all the relevant physical and economic characteristics of the property being appraised. After analysis, the indicators derived are correlated into a value estimate based upon the quality of information obtained and the logical conclusions of the appraiser.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 35

The local market has been active in terms of investment sales of similar properties. Adequate sales exist to formulate a defensible value for the subject property via sales comparison. The following table is a summary of the comparable sales utilized in the valuation of the subject property.

SUMMARY OF COMPARABLE BUILDING SALES

Sale No.	1		2		3		4		5
Name	Montrose Manor		Del Prado		Sonterra		Rosemead Garden		Tuscany Villas
Location	2800 Montrose Ave		9150 Florence		15425 Sherman Way		7711 Rosemead Blvd		1159 N Conwell Ave
	Glendale, CA		Downey, CA		Van Nuys		Pico Rivera, Ca		Covina, CA
Sales Price		$12,000,000		$9,425,000		$22,500,000		$16,259,250		$37,156,875
Sale Date		20-Sep-2006		2-Jun-2006		3-Nov-2005		28-Sep-2005		5-Jul-2005
Year Built		1972		1969		1976		1975		1974
No. of Units		85		56		161		131		250
Net Rentable Area (SF)		64,235		80,006		113,758		96,371		275,705
Avg. Unit Size (SF)		756		1,429		707		736		1,103
Occupancy		97%		97%		97%		97%		97%
Price/SF		$186.81		$117.80		$197.79		$168.72		$134.77
Price/Unit		$141,176		$168,304		$139,752		$124,116		$148,628
Net Income		$696,043		$555,243		$1,212,857		$886,423		$2,086,000
NOI/SF		$10.84		$6.94		$10.66		$9.20		$7.57
NOI/Unit		$8,189		$9,915		$7,533		$6,767		$8,344
Cap Rate (OAR)		5.8%		5.9%		5.4%		5.5%		5.6%
EGIM		11.2		11.4		11.1		11.9		10.9
Expense Ratio (OER)		35%		33%		40%		35%		38%

Comparable #1: This is the September 2006 sale of an 85-unit apartment complex that is located in the City of Glendale, approximately 22 miles northwest of the subject property. The alternative location of the comparable property is rated as being superior to that of the subject property. Built in 1972, construction is wood frame with stucco and wood trim exterior and pitched roof with composition shingle cover. This property is situated on 1.4 acres. Amenities include swimming pool, fitness center, security parking and laundry facility. Unit amenities include standard kitchen appliances, central A/C, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 756 square feet is similar to the subject’s 748 average square foot unit size.

In comparison to the subject, this property is generally similar to the subject property with the exception of its superior location. A downward adjustment will be made to the sales price per unit paid for this comparable for this factor.

Comparable #2: This is the June 2006 sale of a 56-unit apartment complex located approximately one and one-half miles northwest of the subject property, in the City of Downey. The alternative location of the comparable property is rated as being similar to that of the subject property. This property was developed in 1969. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.7 acres. Apartment units include one, two and three-bedroom floor plans. Amenities include swimming pool, club house, fitness center, security entrance, spa and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, ceiling fans and mini-blinds. The comparable’s average unit size of 1,429 square feet is larger than the subject’s 748 average square foot unit size.

In comparison to the subject, this property has a similar location and similar amenities but is superior with regards to average unit size. A downward adjustment will be made to the sales price per unit paid for this comparable for superior unit size.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 36

Comparable #3: This is the November 2005 sale of a 161-unit apartment complex located in the City of Van Nuys, approximately 30 miles northwest of the subject property. The location of the comparable property is superior to that of the subject. This property was developed in 1976. Construction is wood frame with stucco and wood trim exteriors and pitched tile roof. This property is situated on 3.5 acres. Apartment units include one, two and three-bedroom floor plans. Amenities include swimming pool, security entrance, fitness center, spa and laundry facility. Unit amenities include standard kitchen appliances, patio/balcony, central A/C, mini-blinds and ceiling fans. The comparable’s average unit size of 707 square feet is similar to the subject’s 748 average square foot unit size.

In comparison to the subject, this property is generally similar to the subject property with the exception of its superior location. A downward adjustment will be made to the sales price per unit paid for this comparable for superior location.

Comparable #4: This is the September 2005 sale of a 131-unit apartment complex that is located in the City of Pico Rivera, approximately four miles north of the subject property. The alternative location of the comparable property is rated as being slightly inferior to that of the subject property. Built in 1975, construction is wood frame with stucco and wood trim exterior and pitched roof with composition shingle cover. This property is situated on 3.8 acres. Units include one and two-bedroom floor plans. Amenities include swimming pool, recreation room and tennis court. Unit amenities include standard kitchen appliances, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 736 square feet is similar to the subject’s 748 average square foot unit size.

In comparison to the subject, this property is generally similar to the subject property with the exception of its inferior location. An upward adjustment will be made to the sales price per unit paid for this comparable for inferior location.

Comparable #5: This is the July 2005 sale of a comparable property located approximately 18 miles northeast of the subject property, in the City of Covina. The alternative location of the comparable property is rated as being slightly inferior to that of the subject. This property consists of a 250-unit apartment complex developed in 1974. Construction is wood frame with stucco and wood trim exteriors and flat roof. This property is situated on 7.9 acres. Apartment units include one, two and three-bedroom floor plans. Amenities include swimming pool, recreation room, spa, elevator, covered parking and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, ceiling fans, central a/c and mini-blinds. The comparable’s average unit size of 1,103 square feet is larger than the subject’s 748 average square foot unit size.

In comparison to the subject, this property has an inferior location but is superior with regards to amenities and average unit size. An upward adjustment will be made to the sales price per unit paid for this comparable for inferior location and downward adjustments for superior amenities and superior unit size.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 37

COMPARABLE SALES ADJUSTMENT GRID

Sale No.	1			2			3			4			5
Sales Price/Unit	$	141,176		$	168,304		$	139,752		$	124,116		$	148,628
Conditions of Sale		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Adjusted Price	$	141,176		$	168,304		$	139,752		$	124,116		$	148,628
Time		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Time Adjusted Price	$	141,176		$	168,304		$	139,752		$	124,116		$	148,628
Location		-10.0	%		0.0	%		-10.0	%		5.0	%		5.0	%
Age/Condition		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Unit Size/Utility		0.0	%		-20.0	%		0.0	%		0.0	%		-10.0	%
Amenities		0.0	%		0.0	%		0.0	%		0.0	%		-10.0	%
Total Adjustments (%)		-10.0	%		-20.0	%		-10.0	%		5.0	%		-15.0	%
Adjusted Sale Price	$	127,058		$	134,643		$	125,777		$	130,322		$	126,334

Source: Adjustments by KTR.

The unadjusted sales prices range from $124,116 to $168,304 per unit. After adjustment, the comparable sales illustrate a range from $126,334 to $134,643 per unit with an average of $128,827 per unit. A few of the sales required minor adjustments for location as well as adjustment because of superior and inferior physical characteristics. Sales #1, #3 and #4, required the least amount of adjustment. Based on the adjustments considered and indicators exhibited by the sales data with primary emphasis placed on the Sales of #1, #3 and #4, a value of $126,000 per unit is estimated for the subject property. Application of the $126,000 per unit value indicator to the 144 units comprising the subject property results in a value estimate of $18,100,000, rounded.

$126,000   x   144 units   =    $18,144,000

EGIM ANALYSIS: The sales illustrate EGIMs that range from 10.9 to 11.9. Important in selecting an appropriate EGIM is the review of corresponding operating expenses. There is an inverse relationship which generally holds among EGIMs and operating expenses. Properties which have higher expense ratios typically sell for relatively less and therefore produce a lower EGIM. The operating expense ratios for the sales range from 33% to 40%.

In selecting an appropriate EGIM, consideration must be given to the operating expense ratio estimated for the subject. Based on the income and expenses estimated for the subject property in the Income Approach, the subject’s operating expense ratio is calculated at 47%. The subject’s expense ratio is above the high end of the range of ratios exhibited by the sales data, indicating that an appropriate EGIM is below the low end of the comparable range. In consideration of the preceding, an EGIM of 9.5 is concluded.

Based on the effective gross income of $1,965,336 estimated for the subject property, a value indication of $18,700,000 (rounded) is concluded.

$1,965,336    x    9.5   =    $18,670,692 or $18,700,000, rounded

CONCLUSION: The noted value indicators utilizing the sales price per unit and EGIM methods are $18,100,000 and $18,700,000. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when concluding to a final value via the Sales Comparison Approach of $18,400,000.

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Page 38

As such, the Market Value of the subject property’s Fee Simple Interest via the Sales Comparison Approach is therefore estimated at:

Value via the Sales Comparison Approach                      $18,400,000

RECONCILIATION

Cost Approach		N/A
Income Capitalization Approach	$	18,200,000
Sales Comparison Approach	$	18,400,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE                                    $18,200,000

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Addenda

ADDENDA

Casa De Monterey Apartments
Norwalk, California November 28, 2006
Addenda

SUBJECT PHOTOGRAPHS

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

VIEW OF PROPERTY FROM STUDEBAKER ROAD

VIEW OF MANAGEMENT/LEASING OFFICE

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

VIEW OF WALKWAY BETWEEN BUILDINGS

VIEW OF TYPICAL BUILDING ELEVATION

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

VIEW OF TYPICAL POOL

COVERED PARKING

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

VIEW OF PLAYGROUND

VIEW OF TYPICAL UNIT REAR YARD

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE #1

COMPARABLE #2

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE #3

COMPARABLE #4

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE #5

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE SALES

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

NO
PHOTO
AVAILABLE

Improved Sale #1

Name:	Montrose Manor
Location:	2800 Montrose Avenue
	Glendale, CA
Date of Sale:	September 20, 2006
Grantor:	Montrose Apartments Investors LLC
Grantee:	Montrose Manor Apartments LLC
Consideration:	$12,000,000
Terms:	Cash to seller
Price/Unit:	$141,176
Price/SF:	$186.81

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #1 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	12,000,000
Net Rentable Area (SF):		64,235
Number of Units:		85
Average Unit Size (SF):		756
Occupancy		97	%
Year Built		1972
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,070,836		$	12,598		$	16.67
Expenses (including reserves)		(374,793	)		(4,409	)		(5.83	)
Net Operating Income	$	696,043		$	8,189		$	10.84
EGIM		11.2
OER (including reserves)		35	%
OAR		5.8	%

Comments: Three-story wood frame construction in average condition at time of sale.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #2

Name:	Del Prado Apartments
Location:	9150 Florence
	Downey, CA
Date of Sale:	June 2, 2006
Grantor:	William M Grant Trust
Grantee:	MC Del Prado LLC (et al )
Consideration:	$9,425,000
Terms:	Cash to seller
Price/Unit:	$168,304
Price/SF:	$117.80

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #2 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	9,425,000
Net Rentable Area (SF):		80,006
Number of Units:		56
Average Unit Size (SF):		1,429
Occupancy		97	%
Year Built		1969
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	824,494		$	14,723		$	10.31
Expenses (including reserves)		(269,251	)		(4,808	)		(3.37	)
Net Operating Income	$	555,243		$	9,915		$	6.94
EGIM		11.4
OER (including reserves)		33	%
OAR		5.9	%

Comments: Three-story wood frame construction.. Property was in average condition at the time of sale.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #3

Name:	Sonterra Apartments
Location:	15425 Sherman Way
	Van Nuys, CA
Date of Sale:	November 3, 2005
Grantor:	Aslan Sonterra I LLC
Grantee:	15425 Sherman Way LLC
Consideration:	$22,500,000
Terms:	Cash to seller
Price/Unit:	$139,752
Price/SF:	$197.79

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #3 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	22,500,000
Net Rentable Area (SF):		113,758
Number of Units:		161
Average Unit Size (SF):		707
Occupancy		97	%
Year Built		1976
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	2,022,206		$	12,560		$	17.78
Expenses (including reserves)		(809,349	)		(5,027	)		(7.11	)
Net Operating Income	$	1,212,857		$	7,533		$	10.66
EGIM		11.1
OER (including reserves)		40	%
OAR		5.4	%

Comments: Three-story wood frame construction.. Property was in average condition at the time of sale.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #4

Name:	Rosemead Garden Apartments
Location:	7711 Rosemead Boulevard
	Pico Rivera, CA
Date of Sale:	September 28, 2005
Grantor:	Rosemead Garden Associates, LLC
Grantee:	7711 Rosemead Blvd. LLC
Consideration:	$16,259,250
Terms:	Cash to seller
Price/Unit:	$124,116
Price/SF:	$168.72

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #4 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	16,259,250
Net Rentable Area (SF):		96,371
Number of Units:		131
Average Unit Size (SF):		736
Occupancy		97	%
Year Built		1975
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,358,365		$	10,369		$	14.10
Expenses (including reserves)		(471,942	)		(3,603	)		(4.90	)
Net Operating Income	$	886,423		$	6,766		$	9.20
EGIM		11.9
OER (including reserves)		35	%
OAR		5.5	%

Comments: Two-story wood frame construction in average condition at time of sale.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #5

Name:	Tuscany Villas
Location:	1159 N. Conwell Avenue
	Covina, CA
Date of Sale:	July 5, 2005
Grantor:	Transwestern JH Hallmark LLC
Grantee:	PPC Covina Apartments LLC
Consideration:	$37,156,875
Terms:	Cash to seller
Price/Unit:	$148,628
Price/SF:	$134.77

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

Improved Sale #5 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	37,156,875
Net Rentable Area (SF):		275,705
Number of Units:		250
Average Unit Size (SF):		1,103
Occupancy		97	%
Year Built		1974
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	3,379,232		$	13,517		$	12.26
Expenses (including reserves)		(1,293,232	)		(5,173	)		(4.69	)
Net Operating Income	$	2,086,000		$	8,344		$	7.57
EGIM		10.9
OER (including reserves)		38	%
OAR		5.6	%

Comments: Two-story wood frame construction. Property was in average condition at the time of sale.

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

REGIONAL LOCATION MAP

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

NEIGHBORHOOD MAP

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE RENTALS MAP

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

COMPARABLE SALES MAP

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

QUALIFICATIONS

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

WILLIAM L. CORBIN, MAI
SENIOR MANAGING DIRECTOR

WILLIAM CORBIN, MAI is Executive Vice President and manager of the Western Regional Office of KTR Valuation & Consulting Services, LLC, located at 1801 Century Park East, Suite 2210, Los Angeles, California 90067. His direct telephone number is 310/ 203-0699

Education

University of California at Los Angeles, 1977

Bachelor of Arts
Major in Economics

University of Southern California, 1980

Master of Business Administration
Concentration in Real Estate and Finance

Designations

MAI Member — Appraisal Institute

Licenses

California Certified General Real Estate Appraiser
Arizona Certified General Real Estate Appraiser

Affiliations

National Council of Real Estate Investment Fiduciaries (NCREIF) designated representative
- - Valuation sub-committee co-chairperson for Standardized Commercial Appraisal Report

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

WILLIAM L. CORBIN, MAI

Experience

Mr. Corbin began his career with an intensive education in real estate market analysis as a consultant with Robert Charles Lesser & Co. from 1980 to 1983. With RCLCo, he performed over 75 market supply and demand, economic feasibility, and strategic planning assignments for prominent regional and national clients. During this very active construction period, nationally, Mr. Corbin had the opportunity to visit and analyze commercial real estate market conditions is over 20 major metropolitan areas in the Western and Central U.S.

As a mortgage banker from 1983 to 1992, Mr. Corbin arranged a wide variety of financing structures with institutional lenders and equity investors, including permanent loans, construction loans, and joint ventures. In total with George Smith Financial Services/Grubb & Ellis and Center Financial Group, he worked with over 90 institutions and closed over 150 transactions totaling in excess of $700,000,000.

As an appraiser, Mr. Corbin has performed numerous current value narrative appraisals for national and regional institutional lenders and investors. His previous experience in commercial real estate finance gives him particular insight to the capital and investment markets and their impact on institutional real estate activity and values. He has performed a wide variety of appraisals of warehouse distribution buildings, industrial and business parks, office buildings, shopping centers, and apartments. He worked with Landauer Associates from 1992 to 1995, managing the Aetna Realty Investors account for western region property appraisals.

Currently with KTR ten years, Mr. Corbin is responsible for managing the Los Angeles regional office, developing and managing institutional accounts, as well as performing direct valuation work for those clients. He also heads KTR’s national pension fund valuation practice and is the firm’s designated representative to NCREIF, a national organization of pension fund advisors that creates and implements operational policy standards for the industry. Mr. Corbin is currently the chairperson for NCREIF’s valuation sub-committee that is contributing to developing a standardized commercial appraisal report in conjunction with the Appraisal Institute that will become the valuation industry standard.

In addition to professional experience, Mr. Corbin has served as a real estate course instructor and conference collaborator for UCLA Extension

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

WILLIAM L. CORBIN, MAI

Following is a list of representative clients Mr. Corbin has performed services for:

Clients — As Appraiser and Consultant

Aetna Realty Investors, Inc.	Massachusetts Mutual Life
Bechtel Corporation	McCullough Oil Properties
CALTRANS	Mobil Land Development
Catellus Corp.	Chevron Land Development
Philips, North America	Home Savings of America
KOAR Hotel Group	Safeway Stores
Copley Institutional Realty	Santa Anita Realty
Estate of James Campbell	Santa Fe Land Improvement Co.
Franklin Properties, Inc.	Taft Broadcasting Co.
Triton Energy Corp.	Comerica Bank
Union Oil/Moreland Development	Trammell Crow Company
Kaiser Aluminum Corp.	Bank of New York
Lockheed Air Terminal, Inc.	Majestic Realty
Hong Kong and Shanghai Bank Corp.	Canadian Imperial Bank of Commerce
PNC Bank	Sakura Bank
CALSTRS	Newfield Enterprises
Heller Financial	J. P. Morgan Mortgage Capital
Chase Commercial Mortgage Banking	Lend Lease Mortgage Capital
Daiwa Securities America	Whitehall Fund II
Lennar Partners	AMB Institutional Realty Advisors
SSR Realty Advisors	TA Associates Realty
Douglas, Emmett Realty Advisors	LACERA
Dresdner Bank	Henderson Global Investors
Prudential Mortgage Capital	Prudential Insurance Company of America
TIAA-CREF	INVESCO
Principal Real Estate Investors	Cornerstone Real Estate Advisers
RREEF	Deutsche Bank
Eurohypo Bank

Clients — As Mortgage Banker

AEtna Life & Casualty	AFL-CIO Housing Trust
BALCOR	Bank of America
Citicorp REIG	Creative Artists Agency
Forest City Properties	General Electric Credit
Heller Financial Services	Hollywood Center Studios
Home Savings of America	Industrial Bank of Japan
MetroBank	Massachusetts Mutual Life
Principal Mutual Life	Security Pacific National Bank
Societe Generale	Textron Financial Services
U.S. Bancorp	Union Bank
William Morris Agency	DeAnza Group, Inc.
IBEW Pension Fund	Nationwide Life

STEVEN J. GOLDBERG, MAI, CCIM

Casa De Monterey Apartments	November 28, 2006
Norwalk, California	Addenda

SENIOR MANAGING DIRECTOR

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Valuation & Consulting Services, LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

EX-99.(C)(17)

APPRAISAL
OF
BUENA VISTA APARTMENTS
300 EAST BELLEVUE DRIVE
PASADENA, CALIFORNIA

KTR JOB NO. 7-7-06512B

Ms. Martha Long	December 8, 2006
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, SC 29601

Re: Buena Vista Apartments
300 East Bellevue Drive
Pasadena, California

Dear Ms. Long:

At your request, KTR Valuation & Consulting Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of November 17, 2006. The date of value corresponds to the date the subject property was most recently inspected by the appraiser.

The subject property consists of an approximate 1.26 ± acre tract of land improved with a 92-unit garden-style apartment complex known as the Buena Vista Apartments. Construction of the improvements was reportedly completed in 1973. The structural improvements were observed to be in average physical condition and consist of a three-story wood frame building with stucco and wood trim exterior walls and flat roof with built-up cover. The structural improvements are situated atop a subterranean parking garage. Amenities common to all units include standard kitchen appliances, cable TV pre-wire, patio/balcony, ceiling fans and mini-blinds. Community amenities include on-site management/leasing office, clubhouse, recreation room, fitness center, sauna, swimming pool, controlled access gates, underground garage parking and seven laundry rooms. The Buena Vista Apartments contain 77,858 rentable square feet, which suggests an average unit size of 846 square feet.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

5477 Glen Lakes Drive, Suite 202, Dallas, TX 75231
t e l 214.363.3373 • f a x 214.369.4388
w w w . f i r s t a m . c o m

Ms. Martha Long
VMS National Properties JV
December 8, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 17, 2006. is:

SEVENTEEN MILLION NINE HUNDRED THOUSAND DOLLARS
($17,900,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page i

CERTIFICATE OF VALUE

We, William L. Corbin, MAI and Steven J. Goldberg, MAI, certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, are our personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Charles K. Russell provided significant professional help in this appraisal assignment.

Charles Russell made a personal a personal inspection of the property that is the subject of this appraisal. Neither William L. Corbin nor Steven J. Goldberg inspected the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, William L. Corbin, MAI and Steven J. Goldberg, MAI, have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

As of the date of this appraisal, William L. Corbin MAI is currently certified with the State of California Office of Real Estate Appraisers and is licensed as a Certified General Real Estate Appraiser (AG025737) until February 27, 2007.

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page ii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page iii

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page iv

SUBJECT PROPERTY PHOTOGRAPH

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page v

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certificate of Value	i
Basic Assumptions and Limiting Conditions	ii
Subject Photograph	iv
Table of Contents	v
Executive Summary	1
Introduction and Premises of the Appraisal	2
Regional Overview	4
Neighborhood Overview	10
Site Analysis	12
Real Estate Taxes	13
Zoning	14
Description of Improvements	15
Apartment Market Overview	17
Economic Rent Analysis	21
Highest and Best Use	27
Valuation Procedure	28
Income Capitalization Approach	29
Sales Comparison Approach	34
Reconciliation and Final Value Conclusion	38

ADDENDA

Subject Photographs
Comparable Rental Photographs
Comparable Sales
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map
Qualifications

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 1

EXECUTIVE SUMMARY

Property:	Buena Vista Apartments
Location:	300 East Bellevue Drive, Pasadena, California
Assessors Parcel ID No:	5722-019-017 – Los Angeles County Assessor
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 17, 2006
Date of Report:	December 8, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of an approximate 1.26+ acre tract of land improved with a 92-unit garden-style apartment complex known as the Buena Vista Apartments. Construction of the improvements was reportedly completed in 1973. The Buena Vista Apartments contains 77,858 rentable square feet, which suggests an average unit size of 846 square feet.
Location:	The subject property is located in the southern portion of the City of Pasadena, along East Bellevue Road, between South Euclid Avenue and South Marengo Avenue.
Zoning:	The subject site is zoned RM-32, HL-36 (Multi-Family Residential- City of Gardens with a Height Limit Overlay District) by the City of Pasadena. The intended use of land in this zoning district is primarily multifamily and single family residential development.
Flood Zone:	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone D, an area in which flood hazards are undetermined as defined by FEMA.
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months

Valuation Assumptions:

Average Market Rent (per Unit)	$	1,562
Market Vacancy/Credit Loss		2.5	%
Operating Expense Ratio		40	%
Net Operating Income	$	1,026,682
Overall Capitalization Rate		5.75	%
Final Estimate of Market Value, by Approach

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 2

Cost Approach:		N/A
Sales Comparison Approach:	$	17,800,000
Income Approach:	$	17,900,000
Final Estimate of Market Value:	$	17,900,000

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 17, 2006. It is for the internal use of AIMCO to facilitate asset evaluation and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:
	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)”.
Marketing Period	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006, indicates that apartment properties in the national market have an average marketing time of 5.58 months, generally similar to the average of 5.92 months reported one year ago. This estimate seems

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 3

	reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History	Property tax records indicate that VMS National Properties is the current owner of record. The current owner acquired title to the property on November 7, 1984. No details pertaining to the conveyance were provided to the appraisers. No conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.
Most Likely Buyer	National and regional investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1.	buyer and seller are typically motivated;
2.	both parties are well-informed or well advised, and acting in what they consider their best interests;
3.	a reasonable time is allowed for exposure in the open market;
4.	payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5.	the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 4

REGIONAL OVERVIEW

Introduction	Real estate values reflect the influence of four primary forces that motivate human activity; social trends, economic conditions, governmental policies and environmental factors. The purpose of the regional overview is to describe and analyze the area within which the interactions of the four major forces influence properties similar to the subject. This section will further analyze past trends for insight into possible future trends affecting the value of real estate.
Overview	The subject property is located in the Los Angeles MSA, within the city of Pasadena and approximately 10 miles northeast of the Los Angeles Central Business District. Los Angeles County, in which the subject is located, was the first to develop and has always been the largest of the five counties comprising the Los Angeles Metropolitan Area (LAMA). Los Angeles County’s population is 3.5 times the size of Orange County’s, the second largest county in the LAMA. It is 1.5 times the size of the other four counties in the region combined.
Population	The urbanized central and southern portions of Los Angeles County are nearly fully developed. Only the northern portion of the county has significant developable land remaining for future growth. However, these areas are separated from the urbanized areas by natural barriers. Most of the future growth in Orange County is expected to occur in the southeastern part of the county where there are large undeveloped tracts of land. Growth in older parts of both counties will be primarily in -fill of vacant parcels and redevelopment of older properties.
	During the period between 1970 and 1980, the county’s population grew at an average annual compound rate of 0.60%. This was slow compared to Orange County’s rate of 3.13% during the same decade. This was due to Los Angeles County’s already large size and Orange County’s appeal as an alternative residential area. During the 1980s the pace accelerated in Los Angeles County to 1.68% annual compound growth, while Orange County’s slowed to 2.23%. Both counties’ populations increased at slower rates of 1.13% and 1.61% annually between 1990 and 2000. However, this slowed growth still equated to an average annual population increase of 105,180 persons per year in Los Angeles County and 41,784 persons per year in Orange County.
	The slowing of the population growth rates has resulted from the growing scarcity of available land for new development in both counties. Population trends are summarized in the following table showing historical population growth. While the figures in the table are tabulated by the U.S. Census, according to the California Department of Finance the January 2006 populations for Los Angeles and Orange counties were 10,245,572 and 3,072,336 respectively. The figures show 2006 population increases of 0.78% and 0.83%, respectively, for the two

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 5

counties, which have decreased since 2002, although slightly higher than 2005 figures.

LOS ANGELES AND ORANGE COUNTIES POPULATION

		Los Angeles County					Orange County
Year	Population		Ann. Rate # Chg.			Population		Ann. Cpnd. Rate
U.S. Census — (As of April 1)
1970		7,041,980		—			1,420,386		—
1980		7,477,400		0.60	%		1,932,921		3.13	%
1990		8,832,500		1.68	%		2,410,556		2.23	%
2000		9,884,300		1.13	%		2,828,400		1.61	%
California Department of Finance – (As of January 1)
1997		9,147,100					2,672,800
1998		9,225,800		0.86	%		2,724,500		1.93	%
1999		9,330,100		1.13	%		2,776,100		1.89	%
2000		9,487,400		1.69	%		2,829,800		1.93	%
2001		9,646,300		1.67	%		2,880,600		1.80	%
2002		9,817,400		1.77	%		2,930,500		1.73	%
2003		9,979,600		1.65	%		2,978,800		1.65	%
2004		10,103,000		1.24	%		3,017,300		1.29	%
2005		10,166,417		0.63	%		3,047,054		0.99	%
2006		10,245,572		0.78	%		3,072,336		0.83	%

Employment and Industry	The sheer size of the five-county Los Angeles Metropolitan Area economy is its most important asset. As a country, the area would reportedly be ranked 11th in the world in terms of productivity and accounts for over 5% of jobs and spending nationally. Job growth from 1994 through 1999 outpaced the national average and in 2001 the region had approximately 1.4 million more jobs than in 1993 when the region’s employment was at its lowest point in recession of the early 1990’s. The Los Angeles region’s recovery has been led by motion picture production, foreign trade, and gains in older manufacturing sectors such as apparel, textiles, furniture, and toys.
	At the beginning of 2001, the U.S. and California economies were generally viewed as having slipped into recession. The mild economic downturn was compounded by the 9-11-01 event. However, in its 2002-2003 Economic Forecast & Industry Outlook for the Los Angeles Five — County Area, the Los Angeles Economic Development Council (LAEDC) forecasted the five-county region to be minimally impacted by the recession in 2002, with recovery for the region, the state and the nation beginning late 2002.
	Economic reality has caused economists to revise their projections regarding the characteristics of the recovery and its timing. During 2002 and 2003, the overall economy, nationally and in California, experienced a “jobless recovery”, a recovery fueled by low interest rates and consumer spending, with increasing corporate profits but no or minimal job growth.
	In its mid-year 2004-2005 Economic Forecast, the LAEDC projected total Los Angeles County non-farm employment to grow by just 1.0% in 2004, but projected this would increase to 1.6% growth in 2005. In its

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 6

mid-year 2005-2006 Economic Forecast, the LAEDC projected total Los Angeles non-farm employment to again grow by just 1.0% in 2004 or by 40,500 jobs in Los Angeles County in 2005, and projected this would increase to 1.1% growth in 2006. It also forecasted all five counties in the Southern California region to have positive job growth in 2005 and 2006 as follows: Los Angeles – 1.0% and 1.1%, San Bernardino-Riverside – 3.0% and 3.0%, Orange – 1.9% and 1.8%, and San Diego –1.7% and 1.8%. Year-to-date October 2005, Los Angeles County has gained 14,400 job growth.

LAEDC reports “there is much hand wringing about the weak non-farm employment performance of Los Angeles County. For example, the 2005 estimated average is 4,033,800 jobs, compared with the 2001 average of 4,135,700 jobs, which would be fifteen years of no job growth. However, total civilian employment should average 4,670,800 jobs in 2005, compared with the 2001 average of 4,259,700 jobs. The 2005 average is a new high for the county in this indicator. Many analysts feel that the civilian employment survey is not as accurate as the non-farm establishment survey due to the small sample size, but more people are working as independent contractors or in other ways that do not get captured by the establishment survey. A good case can be made that Los Angeles County is on the leading edge of this trend. Examples include the motion picture/TV production industry, software development, and the independent truck drivers who work at the ports. Anecdotal information also indicates that manufacturing and small contractors are using independent contractors.”

The agency notes in its 2006-2007 Economic Forecast and Industry Outlook for California and Southern California that in Los Angles County, positive economic forces for the county include:

•     Continued modest job growth in Aerospace.

•     Strong growth continuing for International Trade with an increase of 12% in two-way trade passing through the local customs district.

•     Tourism will continue running at high levels.

•     Professional and business services will see continued strong demand.

•     The technology sector should hold at high levels.

•     Major project construction will support the construction industry.

Negative economic forces for the county will include:

•     The movie industry will be coping with run-away production, challenges to the existing business models (particularly related to cost control), as well as possible labor strife over the next few years.

•     A lack of quality industrial space available for industrial growth with the countywide vacancy rate in the range of 2%.

•     The continued lack of affordable housing.

•     A modest slowdown in new home building.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 7

•     Not much improvement in the state’s business environment, which has already cost the county jobs, most notably with the departure of Nissan North America headquarters out of state.

The agency is projecting a 0.9% net gain in jobs in 2006, with the county’s unemployment rate continuing at a low rate in the range of 5.3%. By comparison, the 2006 rate of 4.5% was the lowest for the county since 1988.

LOS ANGELES COUNTY HISTORICAL JOB GROWTH

Category	1997			1998			1999			2000			2001			2002			2003			2004			2005			Aug-06
Mining		3,600			36,000			3,500			3,600			3,800			3,800			3,800			4,000			4,100			3,900
Construction		113,700			126,600			131,300			137,300			138,000			134,800			136,900			141,000			149,100			155,800
Manufacturing		641,100			636,000			620,000			604,600			550,400			522,400			488,800			478,200			473,700			465,800
Trade/Trans/Util		779,400			787,800			805,300			817,300			806,000			809,600			798,600			802,500			808,000			798,100
Information		220,400			223,000			239,100			249,000			217,700			197,900			206,600			203,200			216,900			211,800
Financial Activities		221,100			224,000			223,800			219,900			231,800			237,100			242,400			245,000			246,700			247,700
Professional & Business		578,500			592,500			608,300			610,500			583,600			575,700			560,400			570,500			573,600			582,600
Educational & Health		384,600			397,600			410,100			423,000			447,000			463,000			472,400			476,600			483,700			468,000
Leisure & Hospitality		329,500			335,100			339,800			350,000			348,700			356,900			367,700			372,400			383,500			391,500
Other Services		131,700			136,100			137,200			140,600			143,400			146,600			145,000			144,900			146,300			148,900
Government		542,000			556,600			580,800			591,100			610,300			612,600			595,500			584,800			587,000			563,200
Total		3,945,600			4,051,300			4,099,200			4,146,900			4,080,700			4,060,400			4,018,100			4,023,100			4,072,600			4,037,300
Change		—			105,700			47,900			47,700			-66,200			-20,300			-42,300			5,000			49,500			-35,300
L.A. Unemployment		6.0	%		6.0	%		5.3	%		4.5	%		6.3	%		6.4	%		6.3	%		6.0	%		5.1	%		5.1	%
California		5.8	%		5.5	%		4.7	%		4.4	%		6.2	%		6.7	%		6.3	%		5.7	%		5.1	%		4.9	%
U.S.		4.7	%		4.4	%		4.0	%		3.9	%		5.7	%		6.0	%		5.7	%		5.4	%		4.9	%		4.6	%

Source: State of California Employment Development Department

The following table summarized the major employers in Los Angeles County, sorted in alphabetical order by company name.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 8

MAJOR EMPLOYERS IN LOS ANGELES COUNTY

Employer Name	Location	Industry
Aerospace Corp.	El Segundo	Commercial Physical Research
American Honda Motor Con Inc.	Torrance	Automobile & Truck Broker
American Honda Motorcycle DIV	Torrance	Marketing Programs & Services
Amtrak	Los Angeles	Governmnet
California Institute of Technology	Pasadena	University
California State University	Long Beach	Recylcing Centers
Edison International	Rosemead	Utilities-Holding Company
Fox Films	Los Angeles	Television Station
Jet Propulsion Lab	Pasadena	Marketing Programs & Services
Kaiser Foundation Hospital	Los Angeles	Hospital
Kaiser Permanente	Los Angeles	Physicians & Surgeons
King Drew Medical Ctr.	Los Angeles	Hospital
Little CO of Mary Hospital	Torrance	Hospital
Lockheed Martin Aeronautics Co	Burbank	Aircraft Manufacturer
Long Beach Memorial Hospital	Long Beach	Hospital
Los Angeles County Medical Center	Los Angeles	Hospital
Memorial Rehabilitation Hospital	Long Beach	Rehabilitation Services
Six Flags	Valencia	Amusement Park
UCLA	Los Angeles	University
USC	Los Angeles	University
VA Greater Los Angeles	Los Angeles	Hospital
Walt Disney CO	Burbank	Motion Picture Producer & Studio
Westcoast	Carson	Marketing Programs & Services
Xerox Corp	El Segundo	Office Machiens NEC

Transportation	Transportation throughout Southern California is largely dependent on the private automobile, which is supplemented by local and county bus and rail services. One of the assets for Southern California, which has spurred its tremendous growth, has been its freeway system. The Southern California freeway system consists of 650 miles in six to twelve lanes of modern concrete roadways. The region is also well served with a modern system of surface streets.
	The LAMA is a classic example of the multiple nuclei theory of urbanization. Its formation into an urban conglomerate of multiple centers was facilitated by the proliferation of automobiles and the construction of numerous highways and interstate freeways. These are complemented by international and regional airports, the port facilities and rail lines conveniently situated throughout the region.
	While Los Angeles is served by all modes of transportation, the dominance of the highway system is evident. The basin is crisscrossed by interstate freeways connecting the area to all others areas of Southern California and the southwestern United States. Construction is on-going in the improvement of the system, with the expansion of the Orange County stretch of north-south Interstate 5 the current focus. In addition to the freeways, there is a large network of highways and thoroughfares providing surface road transport throughout the entire basin. The LAMA has become the transportation and distribution hub for the entire southwest U.S.
	Aside from the growing light-rail system, passenger and freight rail links are found throughout the Los Angeles-Orange County-San Diego area.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 9

	Connections provide service to other parts of the continental U.S. and Canada. The proximity of several international and regional airports and deep-water ports in the LAMA has been an important factor in the growth of international trade. Los Angeles International Airport is one of the busiest commercial airports in the United States. Twenty-three miles south of Downtown, the Los Angeles/Long Beach harbors provide sea transportation and cargo facilities, and combined represents the United State’s busiest port. Container volume continues to grow at these facilities. The proposed Alameda Corridor project, expected to be developed within a ten-year time span, will greatly improve access between the Los Angeles/Long Beach harbors and the railyards southeast of Downtown L.A. through a cooperative use of existing rail right-of- ways.
	Nonetheless, population growth within the region continues to burden the existing transportation infrastructure. The LAEDC reports that California’s budget problems will impact local governments, as will as transportation projects in the near term and as the region’s population continues to grow, the “transportation deficit” will worsen.
Foreign Trade	The combined Ports of Los Angeles and Long Beach represent the largest man-made facilities on the West Coast providing break-bulk, dry-bulk, general containerized, and liquid cargo shipping. These, combined with the Los Angeles and Ontario international airports and the John Wayne airport, handle one of the highest levels of freight volume in the world. In 1993 the LAMA region passed New York in trade goods volume as the largest in the nation. Together, the ports account for about 25% of all U.S. water-based trade. The following table shows historical port volume by physical cargo units.

HISTORICAL PORT CARGO VOLUME
(IN TEUs –equivalent to one 20-foot cargo container)

Year	Port of Los Angeles		Port of Long Beach		Total Containers		% Chg.
1995		2,500,000		2,843,502		5,343,502
1996		2,600,000		3,067,334		5,667,334		6.1	%
1997		2,900,000		3,504,603		6,404,603		13.0	%
1998		3,300,000		4,097,689		7,397,689		15.5	%
1999		3,828,850		4,408,480		8,237,330		11.4	%
2000		4,879,428		4,600,787		9,480,215		15.1	%
2001		5,183,519		4,462,959		9,646,478		1.8	%
2002		6,105,863		4,524,038		10,629,901		10.2	%
2003		7,178,940		4,658,124		11,837,064		11.4	%
2004		7,385,227		5,703,832		13,089,059		10.6	%
2005		7,484,624		6,774,690		14,259,314		8.9	%

The total dollar volume of trade through the Los Angeles Customs District has increased in every year since 1979. Los Angeles passed New York to retake the lead in foreign trade volume for the nation. The top five trade centers in 2003 were Los Angeles ($214.3 billion), New York ($209.8 billion), Detroit ($179.3 billion), Laredo (114.3 billion), and New Orleans ($87.7 billion). Excluding the peak recessionary year of 2001, Los Angeles county ports have had double-digit trade increases

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 10

	in every year from 1997 forward, with the exception of 2005, which took a dip to 8.9%.
	The growth in foreign trade supports job gains in professional services (like construction, design, and engineering), financial services, wholesale trade, manufacturing, and tourism and entertainment, according the Center for the Continuing Study of the California Economy.
Conclusion	The Los Angeles Metropolitan Area’s diversity and strength have acted as a magnet in attracting in-migration which, coupled with a steady natural increase, have created the second largest population center in the country. A possible impediment to future growth in the developed areas of the region is the capacity of the infrastructure. In many areas it has stressed by sustained population and economic growth. Some improvements to these systems have now commenced planning or construction.
	Notwithstanding the above, most economic forecasts predict strong population and economic growth for the region over the next decade. The economic base of the region has changed and diversified since the onset of the last recession. Declining industries have been replaced with growth industries. This change has been facilitated by the strong entrepreneurial approach to problem solving which is the character of the region.

NEIGHBORHOOD OVERVIEW

The Appraisal of Real Estate defines a neighborhood as “a group of complimentary land uses”. A neighborhood should be distinguished from a district, which is defined as “a type of neighborhood that is characterized by homogenous land use”. A neighborhood will contain land uses complimentary to one another. For example, predominantly residential neighborhoods typically contain some commercial properties that provide services for local residents. The boundaries of a neighborhood can be physical such as a lake, stream or major highway or they may be less easily discernible such as changes in prevailing land use or occupant characteristics.

Location:

The subject property is located in the southern portion of the City of Pasadena, along East Bellevue Drive, between South Euclid Avenue and South Marengo Avenue. Pasadena is a city located in the northern sector of Los Angeles County, north of Los Angeles. As of the 2000 census, Pasadena had a total population of 133,936. Pasadena is the main population and cultural center of the San Gabriel Valley. It is the 8th largest city in Los Angeles County and famous for hosting the annual Rose Bowl football game and Tournament of Roses Parade.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 11

	The greater Pasadena area is bounded by the Raymond Fault line, the San Rafael Hills, and the San Gabriel Mountains. Pasadena is located 10 miles northeast of downtown Los Angeles. The city is bordered by seven communities—Los Angeles, South Pasadena, San Marino, Arcadia, Sierra Madre, La Cañada Flintridge and unincorporated Altadena.
	The world-famous California Institute of Technology is located in the southern-central area of Pasadena, with Pasadena City College located just to the northeast. Fuller Theological Seminary is located just east of downtown Pasadena. Pacific Oaks College is located right next to the Pasadena’s National Historic Landmark — The Gamble House. The famous Art Center College of Design is on the hills overlooking the Rose Bowl, and the Jet Propulsion Laboratory (operated by Caltech) is located in nearby La Canada Flintridge.
Access:	Primary roadways in the neighborhood include the east/west traffic arteries of East Walnut Street, East Colorado Boulevard, East Delmar Boulevard, East California Boulevard, and IH 210 and SH 110. North/south traffic arteries include South Fair Oaks Avenue, South Los Robles Avenue, South Allen Avenue, Sierra Madre Boulevard, South San Gabriel Boulevard and SH 19, SH 710 and SH 110 Business. All of the aforementioned east/west roadways provide direct access to SH 710, SH 110 Business and SH 19. SH 710 and SH 110 Business are just a few blocks west of the subject property. SH 19 is approximately four miles east of the subject property. All of the north/south routes provide access to IH 210, approximately one mile north of the subject site. The well-managed network of regional and local roadways renders good access to and within the neighborhood.
	The subject neighborhood is accessible to neighborhood services and employment centers. Numerous recreational parks, lakes, rivers and schools are located within a short commute of the subject neighborhood. Commercial and retail uses, local businesses and area employers are abundant along the previously mentioned interstate and state highways. Travel time to downtown Los Angeles, approximately 10 miles southwest, is around 20 minutes. Public services, including schools and medical facilities, are in close proximity.
Land Use:	The subject neighborhood is a mature commercial and residential district. The area realized much of its growth in the mid 1960’s and early 1970s. Most of the apartments in the area were built in the 1970s. As the City of Pasadena has become densely populated, most of the land in the subject neighborhood has been developed. Approximately 90% of the land area is developed, with limited land available to accommodate additional development. Multifamily, single-family and commercial development is prevalent along the primary roadways. Underutilized land in the form of public green belts, parks, athletic fields and railroad easements are in close proximity to the subject property and scattered throughout the

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 12

	neighborhood. The predominate land uses in the neighborhood is residential consisting of both single and multifamily housing developments supporting commercial uses are also abundant.
Adjacent Land Uses:	South:        Single and multifamily dwellings
	North:        Private middle school
	East:          Multifamily dwellings
	West:         Multifamily dwellings
New Construction:	Due to the mature nature of the neighborhood and limited availability of vacant land suitable for development, no new construction was noted in the immediate vicinity of the subject property.
Change in Current Use	The neighborhood can be classified as being in a mature stage of its life cycle as there is limited land available to accommodate new development. As a result of its good location in the City of Pasadena and greater Los Angeles region, the area is anticipated to remain a desirable commercial and residential location. No material change in existing land uses is anticipated.
Conclusion	The subject property is located in the southern portion of the City of Pasadena. The area is easily accessible from all parts of Pasadena as well as cities from beyond due to its proximity to interstate freeways and state highways. As a result of its good location, the area has proven to be a desirable residential and commercial location. Employers are located in close proximity to the subject neighborhood. The presence of employers in the area as well as its close proximity to educational facilities has enhanced the desirability of the neighborhood as a residential location. Area residents are offered a broad range of services and good access to other parts of Pasadena and the greater Los Angeles area. Future prospects for the neighborhood are deemed positive.

SITE ANALYSIS

Location	The site is located in the southern portion of the City of Pasadena, along East Bellevue Drive, between South Euclid Avenue and South Marengo Avenue.
Size	The site is irregular in shape and consists of a total land area of approximately 1.26 ± acres.
Excess Land	None
Topography	Generally level and on grade with the bounding street of East Bellevue Drive
Site Improvements	The approximate 1.26 ± acre site is improved with a 92-unit garden-style apartment community known as the Buena Vista Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	East Bellevue Drive is a neighborhood collector street that is oriented in an east/west direction.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 13

Desirability of Location	Good
Access to Major Arteries	Average
Access to Local Arteries	Average
Curb Appeal	Average
Ingress/Egress	Average – Adequate road frontage along a minor neighborhood collector street.
Visibility from Road	Average
Public Transportation	Average
Neighborhood Appearance	Good
Flood Zone Map	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone D, an area in which flood hazards are undetermined as defined by FEMA.
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property which would disclose any land use restrictions which may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Conclusion	The subject represents a desirable site for multifamily development.

REAL ESTATE TAXES

Assessor’s Parcel No:	5722-019-017 (Los Angeles County Assessor)
Effective tax rate	1.2499963 per $100 of assessed value
Equalization Rate	Assessed values for real property in Los Angeles County are based on 100% of the market value estimated for the property by the county assessor.
2005-2006 Assessed Value	$6,688,872
Tax Analysis:	The subject property is situated within the taxing jurisdictions of the City of Pasadena, Los Angeles County, Unified Schools, Community College, Flood Control, Metro Water District and a General Tax Levy. The Los Angeles County Property Appraiser assesses the property for all of the applicable taxing jurisdictions.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 14

The Proposition 13 Amendment to the California State Constitution limits the maximum annual tax on real property to one percent of market value plus an additional sum to pay for bonded indebtedness on affected property. Per Proposition 13, properties are only reassessed upon sale or significant improvement. Between these events, the assessed value may be increased by a maximum of 2.0% per year. For the purposes of this report, the assessed value is based on an assumed sale at our concluded market value. Our estimates of property taxes used in the direct capitalization method assumes a sale of the subject property at our market value conclusion and the above effective tax rate.

Estimated Tax Liability

$224,000 (Concluded value of $17,900,000 multiplied by the effective tax rate of approximately 1.25 per $100 of assessed value.)

ZONING

Zoning:	The subject site is zoned RM-32, HL-36 (Multi-Family Residential- City of Gardens with a Height Limit Overlay District) by the City of Pasadena.
Permitted Use	The RM-32 zoning designation is intended to provide appropriately located areas for medium and high density residential neighborhoods that are consistent with and implement the Medium Density, Medium-High Density and High Density Residential land use designations of the General Plan and with the standards of public health and safety established by this Zoning Code. The HL Height Limit Overlay District is used to establish special height limits to achieve or preserve the desired character of a neighborhood or nonresidential area within the City.
Maximum Height:	36 feet
Minimum Lot Size:	10,000 square feet
Width:	60 feet
Front Set Backs:	Minimum of 20 feet
Side Set Backs:	5 feet for a distance of 40 feet behind the front setback line
Rear setbacks:	None required
Comments:	It appears as though the existing improvements represent an allowed and conforming use of the site with regard to zoning.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 15

DESCRIPTION OF IMPROVEMENTS

The subject improvements consist of a 92-unit garden-style apartment complex known as the Buena Vista Apartments. The following offers a description of the improvements.

KTR Site Inspector:	Charles K. Russell
Date of Inspection:	November 17, 2006
Property Contact:	Cheryll Watson
Year Built:	1973
Number Units:	92
Configuration/Stories:	Garden-style complex, 3-story residential structure over a subterranean parking garage.
Net Rentable Area:	77,858 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls:	Stucco and wood trim
Roof:	Flat with a built-up cover
Doors and Windows:	Exterior entrance doors are solid core wood. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Electric AC condensing units, heat provided by a gas-fired boiler system.
Plumbing:	Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet and sink and combination bathtub/shower with ceramic tile wall surround. Hot water is provided by a gas-fired boiler system.
Electrical/Water:	Property is sub-metered for electric, electricity is paid by the tenant. Landlord is reimbursed for water usage by tenant.
Parking and Walkways:	The parking areas and internal roadways are concrete paved. Walkways are concrete paved. There is adequate on-site parking provided.
INTERIOR
Walls and Ceilings:	Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over padding and sheet vinyl in living areas, carpet over padding in bedrooms and sheet vinyl in the kitchens and bathroom.
Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and porcelain sink. Appliances include a combination range/oven, exhaust fan, disposal and, dishwasher.
PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes
Fitness Center:	Yes
Clubroom:	Yes
Tennis Court:	No
Basketball Court:	No
On-site Management Office:	Yes
Laundry Room:	Yes (7)

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 16

Microwave:	No
Compactor:	No
Fireplace:	No
Ceiling Fans:	In living area
Cable TV:	Yes (prewire)
Balconies/Patios:	Yes
Perimeter Fencing:	No
Access Controlled Entry:	Yes
Other:	Recreation room and sauna

The following chart illustrates the property’s unit breakdown and size.

BUENA VISTA APARTMENTS — UNIT MIX

Unit Type	No. of Units		Size (SF)		Total (SF)
1BR/1BA		24		670		16,080
1BR/1BA		1		730		730
1BR/1BA/Den		6		785		4,710
1BR/1BA/Den		18		800		14,400
1BR/1BA/Den		2		824		1,648
2BR/2BA		1		847		847
2BR/2BA		12		917		11,004
2BR/2BA		2		941		1,882
2BR/2BA		1		953		953
2BR/2BA		6		962		5,772
2BR/2BA		2		974		1,948
2BR/2BA		2		987		1,974
2BR/2BA		3		998		2,994
2BR/2BA		4		1046		4,184
2BR/2BA		2		1108		2,216
3BR/2BA		6		1086		6,516
Totals/Average		92		846		77,858

CONDITION/MAINTENANCE

Overall Condition:	Average
Landscaping:	Average
Parking:	Adequate
Sidewalks/Curbs:	Average
Walls/Fences:	Average
Refuse Area:	Average
Basement:	N/A
Health Club:	Average
Club Room:	Average
Exterior Walls:	Average
Roofs:	Average
Stairs:	Average
Lobby/Hallways:	Average
Entry Doors:	Average
Patios/Balconies:	Average
Elevators:	Average
Apartment Interiors:
Overall:	Average

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 17

Kitchen Equipment:	Average
Mechanical Equipment:	Average
Bathroom:	Average
Walls/Ceilings:	Average
Layout:	Average
Light and View Quality:	Average
Cosmetic Repairs:	Our physical inspection revealed that the subject property is in average condition.
Deferred Maintenance:	No material elements of deferred maintenance were noted during the appraiser’s inspection of the property and on-site management reported none.
Comparability:	Similar to competing properties of the same vintage.
Observed Effective Age:	25 years (lower than actual age of the improvements due to adequate upkeep and maintenance of the improvements)
Economic Life:	45 years (per Marshall Valuation Service Manuel)
Remaining Economic Life:	20 years
General Comments:	Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

APARTMENT MARKET OVERVIEW

The following apartment market analysis is designed to provide the reader an understanding of the Los Angeles area apartment market and its direct influence on the Pasadena market. The most recent source of data available to the appraisers was the “Hendricks & Partners Apartment Update 2006-Review”, the third quarter 2006 REALFACTS Apartment Vacancy/Rent Survey for the Los Angeles County apartment market and the “Apartment Research Report-October 2006”, prepared by Marcus & Millichap.

LOS ANGELES COUNTY APARTMENT MARKET

Overview

The Los Angeles apartment market was ranked 5th in the nation out of 37 markets nationally in 2005 and into 2006, down from rank No. 3 in 2004, and No. 2 in 2003, by Marcus & Millichap, a national brokerage firm specializing in apartment investment sales.

Most economic reports project that long-term job growth in the Los Angeles area should be in the range of 40,000 to 80,000 per year. The Los Angeles Economic Development Council reports a growth of 50,800 new jobs in the Los Angeles area over the year ending June 2006, equating to a gain of 1.3%. According to recent forecasts, trade and tourism are set for record years in 2006. The number of overnight visitors to the region is expected to hit an all-time high of 25.7 million, up 32% from 2005. The regions growth is fueling continued demand for apartments. However, a shortage of developable land, high land prices and rising construction costs are formidable challenges for developers. Generally, demand for one rental unit is generated by the creation of six jobs. Based on this ratio, demand for roughly 7,000 to 13,000 new units

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 18

per year would be required to meet annual demand. Marcus & Millichap reports 5,000 to 6,000 units each year will be added in the foreseeable future. Of the 5,000 units completed in 2005, roughly one-third were luxury apartments built in the Downtown submarket. Completions will increase slightly this year, as developers deliver 5,100 units. While the total this year is up from 2005, it represents a minor 0.7% addition to existing apartment inventory. Clearly, 5,000 to 6,000 new apartment units per year are not nearly enough to meet the demand created by the roughly 120,000 new residents to the county each year.

Home price appreciation moderated across the L.A. area in 2006 as affordability waned and interest rates began to tick up. Sales of existing homes fell 14% in the first half of the year compared to a year prior. For the year ending June 2006, the median home price gained a moderate 12%, down from the appreciation levels of more than 15% a year ago and nearly 32% in 2004. Although price appreciation has slowed, home purchases remain out of reach for many residents, expanding the renter pool and forcing many to remain in the rental market for the foreseeable future. Consequently, vacancy rates are expected to end the year at 3%, 10 basis points lower than the rate at the end of 2005. Tight market conditions are allowing owners to raise rents at an accelerated pace. By year end, the average asking rent is expected to reach $1,360 per month, up 6.7% from 2005, while the average effective rent posts a similar gain to $1,320 per month.

Approximately 1,700 units came online during the first half of 2006, with completions expected to accelerate in the second half of the year. In addition, roughly 15,000 units are in various stages of planning. There are currently 6,700 apartments under construction in Los Angeles County, with 3,400 units scheduled for completion by year end. The majority of new development is centered in downtown Los Angeles, with 2,000 units under development, accounting for almost 30% of total construction.

With construction and absorption keeping pace with one another, the average apartment vacancy rate is expected to end the year at 3%.

LOS ANGELES COUNTY
APARTMENT MARKET CHARACTERISTICS

Number of Complexes		539
Total Unit Inventory		127,512
Avg. Year Built		1978
Avg. No. Units Per Complex		236
Avg. Occupancy Rate		96.0	%
Avg. Rent/Unit/Month	$	1,559

Source: RealFacts, 4Q’05

The following table shows the historical apartment rent growth by unit type and total market occupancy rates for Los Angeles County.

LOS ANGELES COUNTY HISTORICAL RENT AND OCCUPANCY TREND

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 19

																												4 Yr.
Unit Type	1998			1999			2000			2001			2002			2003			2004			2005			2006			Change
Studio	$	697		$	733		$	822		$	894		$	929		$	951		$	992		$	1,054		$	1,139			22.6	%
Jr. 1/1	$	670		$	713		$	813		$	879		$	1,010		$	1,116		$	1,163		$	1,188		$	1,248			23.6	%
1/1	$	840		$	894		$	1,008		$	1,087		$	1,135		$	1,186		$	1,240		$	1,305		$	1,395			22.9	%
2/1	$	787		$	834		$	919		$	1,029		$	1,103		$	1,148		$	1,205		$	1,262		$	1,332			20.8	%
2/2	$	1,095		$	1,145		$	1,281		$	1,401		$	1,456		$	1,530		$	1,597		$	1,688		$	1,794			23.2	%
2 TH	$	1,141		$	1,282		$	1,406		$	1,514		$	1,595		$	1,663		$	1,583		$	1,666		$	1,760			10.4	%
3/2	$	1,225		$	1,297		$	1,405		$	1,528		$	1,628		$	1,685		$	1,729		$	1,818		$	1,949			19.7	%
3 TH	$	1,601		$	1,787		$	1,996		$	2,118		$	2,152		$	2,083		$	2,056		$	2,319		$	2,361			9.7	%
Wtg. Avg.	$	938		$	995		$	1,110		$	1,205		$	1,268		$	1,327		$	1,382		$	1,465		$	1,559			22.9	%
Occupancy		96.3	%		97.3	%		97.5	%		96.4	%		95.4	%		95.3	%		95.2	%		95.9	%		96.0	%		0.8	%

Source: RealFacts

The data shows the consistent strength of the county apartment market with a high average occupancy over 95% for the last eight years. Rent growth also averaged a four year change of 22.9%

The following table shows the Los Angeles County trend in apartment rents and occupancy quarter-by-quarter over the last 24 months. This data gives a more detailed look at recent market trends. This data indicates the county apartment market vacancy has fallen in a narrow range from the third quarter of 2004 to the third quarter of 2006, and market rental rates have increased 8.4% over the last year.

LOS ANGELES COUNTY RECENT RENT AND OCCUPANCY TREND

																												Prev. Yr.
Unit Type	3Q ’04			4Q ’04			1Q ’05			2Q ’05			3Q ’05			4Q ’05			1Q ’06			2Q ’06			3Q ’06			% Chg.
0/1	$	995		$	1,004		$	1,023		$	1,054		$	1,056		$	1,084		$	1,116		$	1,135		$	1,166			10.4	%
Jr. 1/1	$	1,175		$	1,143		$	1,149		$	1,184		$	1,209		$	1,211		$	1,233		$	1,233		$	1,280			5.8	%
1/1	$	1,252		$	1,265		$	1,277		$	1,297		$	1,313		$	1,335		$	1,362		$	1,393		$	1,430			8.9	%
2/1	$	1,218		$	1,221		$	1,231		$	1,256		$	1,274		$	1,287		$	1,320		$	1,324		$	1,353			6.2	%
2/2	$	1,613		$	1,629		$	1,656		$	1,667		$	1,696		$	1,733		$	1,756		$	1,789		$	1,835			8.2	%
2 TH	$	1,568		$	1,580		$	1,631		$	1,667		$	1,669		$	1,698		$	1,738		$	1,770		$	1,773			6.2	%
3/2	$	1,746		$	1,757		$	1,791		$	1,815		$	1,828		$	1,838		$	1,861		$	1,973		$	2,013			10.1	%
3 TH	$	2,009		$	2,017		$	2,320		$	2,341		$	2,288		$	2,325		$	2,371		$	2,362		$	2,350			2.7	%
Wtg. Avg.	$	1,392		$	1,407		$	1,435		$	1,455		$	1,472		$	1,498		$	1,525		$	1,556		$	1,595			8.4	%
Occupancy		95.2	%		95.8	%		95.3	%		95.5	%		96.7	%		95.9	%		96.0	%		95.7	%		96.2	%		-0.5	%

Source: RealFacts

The L.A. North/Ventura County market, in which the subject property resides, saw strong leasing activity, boosted by demand for rentals and the availability of new product, result in the absorption of 215 units during the second quarter, up from 55 units absorbed a year earlier. Year-to-date 2006 has an absorption of 378 units compared to 2005’s annual absorption of 334 units.

A total of 346 new apartment units came online during second quarter 2006, in contrast to one year ago, when no new units entered lease-up. Expectations are that more than 1,500 units will come online before the end of the year, which surpasses levels reported from 2001 to 2004. Before the end of the year, four properties near the interchange of the Hollywood and

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 20

Ventura freeways are expected to add approximately 1,000 units and another 260 units are scheduled to be completed in Woodland Hills.

Multifamily permits, including rental and for-sale units, increased to 1,380 units in the second quarter, up from the 1,355 units one year earlier. Year-to-date permits total 3,350 units, 25% ahead of the same time last year.

With condo conversions and positive absorption in the first quarter, the average apartment vacancy rate decreased from 4.0% in the second quarter of 2005 to 3.7% in the second quarter of 2006.

Rent growth increased to 7.4% for the year ended June 2006, compared to a gain of 4.2% a year ago. This is the largest increase in five years

L.A. NORTH/VENTURA COUNTY 2006 SECOND QUARTER VACANCY & RENT

	Vacancy			Vacancy			Avg. Rent			Avg. Rent			Avg. Rent		Avg. Rent
Submarket	2006			2005			Increase 2006			Increase 2005			2006		2005
Burbank/Glendale		5.0	%		3.3	%		8.6	%		6.3	%		$1,823		$1,679
Northeast Valley		1.7	%		2.2	%		6.4	%		5.2	%		$1,038		$975
Western Valley		8.8	%		8.1	%		10.7	%		0.7	%		$1,741		$1,573
Northwest		4.6	%		4.1	%		6.9	%		6.0	%		$1,411		$1,319
Canoga/Reseda		2.7	%		2.8	%		4.8	%		4.1	%		$1,179		$1,125
South Valley		3.3	%		5.3	%		5.6	%		4.9	%		$1,592		$1,507
Mid-Valley		2.6	%		4.0	%		6.0	%		3.8	%		$1,135		$1,070
Tarzana/Woodland Hills		2.5	%		2.8	%		10.1	%		2.5	%		$1,621		$1,473
Ventura County		3.6	%		4.8	%		7.8	%		2.2	%		$1,425		$1,322
Santa Clarita		4.2	%		4.2	%		4.3	%		5.3	%		$1,425		$1,366
Desert Communities		2.7	%		2.6	%		7.5	%		6.2	%		$   937		$   871
Totals		3.7	%		4.0	%		7.4	%		4.2	%		$1,416		$1,318

Conclusion The overall Los Angeles area’s economy should continue to post solid employment and population growth over the coming years. The subject’s L.A. North/Ventura County market area seems to be at a slightly higher level of occupancy but lower level of rent than the overall Los Angeles area. As demand and new construction in the L.A. North/Ventura County continue to be on an equal par, occupancy is anticipated to remain high over the coming year. As occupancy levels continue to be high, concessions will likely continue to be nonexistent. The remainder of the Los Angeles area has seen an increase in apartment development, attempting to keep up with job and demand growth.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 21

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Rent Comparable #1

Address:	Windrose Place
	271 East Bellevue Drive
	Pasadena, California
Number of Units:	N/A
Year Built:	1989
Description:	Garden-style apartments with three-story residential buildings. Stucco and wood sided exterior walls, pitched roofs with asphalt shingle cover.
Amenities:	Apartment features include standard kitchen appliances, central a/c, alarm system, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pool, spa, clubhouse, fitness center, conference room, gated access to garage parking, laundry facility and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		618	$	1,395	$	2.26
1BR/1BA/Den		803	$	1,525	$	1.90
2BR/2BA		1,008	$	1,775	$	1.76
3BR/2BA		1,186	$	1,995	$	1.68
Totals/Average		904	$	1,673	$	1.90

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is located 1/2 block west of the subject property. It is similar to the subject property in terms of location, amenities and physical characteristics.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 22

Rent Comparable #2

Address:	Archstone Pasadena
	350 Del Mar Boulevard
	Pasadena, California
Number of Units:	N/A
Year Built:	1973
Description:	Garden-style apartments with three-story residential buildings. Stucco exterior walls, pitched roofs with asphalt shingle cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pool, fitness center, saunas, elevator, fitness center, laundry facility, gated garage parking and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		680	$	1,435	$	2.11
2BR/1BA		1,000	$	1,935	$	1.94
Totals/Average		840	$	1,685	$	2.03

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is located approximately one block north of the subject property. It is similar to the subject property in terms of location, age, amenities and physical characteristics.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 23

Rent Comparable #3
Address:	Monterra Del Sol
	280 S. Euclid Aveune
	Pasadena, California
Number of Units:	N/A
Age:	1973
Description:	Garden-style apartments with three-story residential buildings. Stucco exterior walls, pitched roofs with asphalt shingle cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, fitness center, business center, saunas, elevator, laundry facility, gated garage parking and on-site management.

Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		720	$	1,575	$	2.19
1BR/1BA		880	$	1,650	$	1.88
2BR/2BA		1,000	$	1,850	$	1.85
3BR/2BA		1,100	$	1,975	$	1.80
Totals/Average		925	$	1,763	$	1.93

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is located approximately 1.5 blocks north of the subject property. It is similar to the subject property in terms of location, age, amenities and physical characteristics.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 24

Rent Comparable #4
Address	Monterra Del Rey
	350 S. Madison Avenue
	Pasadena, California
Number of Units:	N/A
Age:	1973
Description:	Garden-style apartments with three-story residential buildings. Stucco and wood sided exterior walls, flat roofs with built-up cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, fitness center, business center, saunas, elevator, laundry facility, gated garage parking and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		820	$	1,575	$	1.92
2BR/2BA		892	$	1,835	$	2.06
3BR/2BA		1,250	$	2,075	$	1.66
Totals/Average		987	$	1,828	$	1.88

Occupancy:	98%
Concessions:	No concessions at this time
Comments:	This property is situated approximately three blocks northeast of the subject property. It is similar to the subject property in terms of location, age, amenities and physical characteristics.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 25

Rent Comparable #5
Address:	Monterra Del Mar
	280 E. Del Mar Boulevard
	Pasadena, California
Number of Units:	N/A
Year Built:	1974
Description:	Garden-style apartments with three-story residential buildings. Stucco and wood sided exterior walls, flat roofs with built-up cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds and ceiling fans. Property features include swimming pools, fitness center, business center, saunas, elevator, laundry facility, gated garage parking and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		680		$1,565		$2.30
2BR/2BA		950		$1,895		$1.99
Totals/Average		815		$1,730		$2.15

Occupancy:	100%
Concessions:	No concessions at this time
Comments:	This property is situated one block north of the subject property. It is similar to the subject property in terms of age and physical characteristics.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 26

ANALYSIS

The subject property is situated in a good Pasadena location along East Bellevue Drive, between South Euclid Avenue and South Marengo Avenue. It is competitive with other properties in terms of location, condition, amenities, and unit size. The tables below illustrate the comparables with the most similar floor plans in relation to the subject’s floor plans.

ONE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		670 - 824		$1,359 - $1,469		$1.72 - $2.03
Windrose Place		618 - 803		$1,395 - $1,525		$1.90 - - $2.26
Archstone Pasadena		680		$1,435		$2.11
Monterra Del Sol		720 - 880		$1,575 - $1,650		$1.88 - $2.19
Monterra Del Rey		820		$1,575		$1.92
Monterra Del Mar		680		$1,565		$2.30

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		847 - 1,108		$1,729-$1,879		$1.58-$2.09
Windrose Place		1,008		$1,775		$1.76
Archstone Pasadena		1,000		$1,935		$1.94
Monterra Del Sol		1,000		$1,850		$1.85
Monterra Del Rey		892		$1,835		$2.06
Monterra Del Mar		950		$1,895		$1.99

THREE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		1,086		$1,969		$1.81
Windrose Place		1,186		$1,995		$1.68
Monterra Del Sol		1,100		$1,975		$1.80
Monterra Del Rey		1,250		$2,075		$1.66

The subject is equally similar to all of the comparables in terms of location, amenities, physical attributes and curb appeal. The subject is slightly inferior to Windrose Place in terms of age. In general, the subject’s rental rates should be similar to the rents indicated by all of the comparables with the exception of Windrose Place, which should command a higher rental rate because of its superior age.

As indicated above, the rent (on a per square foot basis) for the subject’s one-bedroom floor plans are within a tolerable variance of the range of rents illustrated by all of the comparables

The quoted rents for the subject’s two-bedroom units are within the range of rents illustrated by all of the comparables.

The quoted rents for the subject’s three-bedroom units are most similar to the rates at Monterra del Sol, but within a tolerable variance of the range of rents illustrated by all of the comparables

Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 27

ECONOMIC RENT POTENTIAL-BUENA VISTA APARTMENTS

			Size		Total		Quoted		Quoted		Economic		Economic
Unit Type	Mix		(SF)		Area		Rent/Unit		Rent/SF		Rent/Unit		Rent/SF		Total Rent
1BR/1BA		24		670		16,080	$	1,359	$	2.03	$	1,359	$	2.03	$	32,616
1BR/1BA		1		730		730	$	1,419	$	1.94	$	1,419	$	1.94	$	1,419
1BR/1BA/Den		6		785		4,710	$	1,359	$	1.73	$	1,359	$	1.73	$	8,154
1BR/1BA/Den		18		800		14,400	$	1,379	$	1.72	$	1,379	$	1.72	$	24,822
1BR/1BA/Den		2		824		1,648	$	1,469	$	1.78	$	1,469	$	1.78	$	2,938
2BR/2BA		1		847		847	$	1,769	$	2.09	$	1,769	$	2.09	$	1,769
2BR/2BA		12		917		11,004	$	1,759	$	1.92	$	1,759	$	1.92	$	21,108
2BR/2BA		2		941		1,882	$	1,749	$	1.86	$	1,749	$	1.86	$	3,498
2BR/2BA		1		953		953	$	1,739	$	1.82	$	1,739	$	1.82	$	1,739
2BR/2BA		6		962		5,772	$	1,729	$	1.80	$	1,729	$	1.80	$	10,374
2BR/2BA		2		974		1,948	$	1,809	$	1.86	$	1,809	$	1.86	$	3,618
2BR/2BA		2		987		1,974	$	1,729	$	1.75	$	1,729	$	1.75	$	3,458
2BR/2BA		3		998		2,994	$	1,779	$	1.78	$	1,779	$	1.78	$	5,337
2BR/2BA		4		1046		4,184	$	1,879	$	1.80	$	1,879	$	1.80	$	7,516
2BR/2BA		2		1108		2,216	$	1,749	$	1.58	$	1,749	$	1.58	$	3,498
3BR/2BA		6		1086		6,516	$	1,969	$	1.81	$	1,969	$	1.81	$	11,814
Totals/Average		92		846		77,858	$	1,562			$	1,562	$	1.85	$	143,678

HIGHEST AND BEST USE

According to the Third Edition of The Dictionary of Real Estate Appraisal, published by the Appraisal Institute, highest and best use is defined as:

“the reasonably probable and legal use of vacant land or an improved property; which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability”.

HIGHEST AND BEST USE AS IF VACANT

Surrounding Land Uses	Primarily single and multi-family developments along East Bellevue Drive, South Euclid Avenue and South Marengo Avenue. Multifamily development exists adjacent west, east and south of the subject site.
Physically Possible	The size and accessibility of the site would allow for most development. However, development intensity would be restricted by the subject property’s location, along East Bellevue Drive, a lightly traveled neighborhood collector street that can only handle a limited volume of vehicular traffic. The majority of high intensity retail and commercial uses in the neighborhood are situated at major intersections. Given the site’s secondary location, high intensity retail use is not indicated. Of the potential legal uses, multifamily use would appear to be the most appropriate physically possible use.
Legally Permissible	Multifamily use is the intended use of the site.
Financial Feasible	The determination of financial feasibility is dependent primarily on demand. The immediate market exhibits strong demand characteristics as evidenced by stable rental rates, high occupancy levels and the lack of rent concessions in competing apartment projects. New apartment

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 28

	construction is occurring in various areas throughout the Los Angeles area indicating that financial feasibility exists to warrant the cost of such construction. New apartment development is considered to be financially feasible at this time.
Conclusion	Based on the three criteria previously discussed, the maximally profitable use of the site would be multifamily residential development.
HIGHEST AND BEST USE AS IMPROVED
Current Improvements	92-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of nontypical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the Pasadena/Los Angeles area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 29

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $143,678. The annual gross rent potential estimated for the apartment units total $1,724,136.

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease ranges from 0.8% in 2003, 3.9% in 2004 and 3.0% in 2005. The 2006 year-to-date amount equates to 3.5%. Based on the previous history at the subject property, as well as current

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 30

annualized gross rent potential, we have deducted a loss to lease expense of 3.0% of the potential gross income or $51,724.

Concessions: Rent concessions in the market are minimal or non-existent at area apartments. Traditional apartment concessions consist of reduced or free rent over a portion of the lease term. As a percentage of the property’s gross rent potential, concessions amounted to less than 0.1% in 2003, 0.2% in 2004 and increasing to 1.5% in 2005. Concessions are slightly less than 1.0% for 2006 (annualized). For our analysis, concessions are projected at 1.0% of the estimated gross rent potential or $17,241.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 99% occupied. On site management indicated that the property generally maintains an occupancy in the 98% to 100% range. The properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 98% to 100%. The average occupancy of the income comparables surveyed equates to approximately 98%. Information presented in the Apartment Market Overview section of this report indicates that the average occupancy for properties within the Los Angeles North/Ventura County area is approximately 96.4%, an amount slightly below the estimated average occupancy produced by primary comparables in the immediate area of the subject property.

As indicated in the Economic Rent Analysis section of this report, the quoted rent structure for the subject property seems to be market oriented based on a review of the comparable rentals in the area. It appears as though the subject’s occupancy level is similar to those levels realized by competing properties in the area as a result of its rent structure.

Based on the subject’s average occupancy level of occupancy sustained during 2006, tempered against the average occupancy reported by competing properties in the influencing area and occupancy level indicated for properties in the Los Angeles North/Ventura County area, a vacancy factor of 2.0% is estimated for the subject property. In addition, a 0.5% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 2.5%.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Total utility income in 2003 was $20,150, increasing to $21,299 in 2004 and $23,452 in 2005. The utility income continues to trend upward, resulting in an annualized 2006 amount of $24,490. Based on the historical utility income receipts, we have estimated Utility Income to be $25,000 or $272 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts range from 2.7% to 4.2%. Other income is annualized at 2.4% in 2006. Based on historical and annualized 2006 other income receipts, we have estimated Other Income to be approximately 3.0% of the gross rent potential or $51,724.

Expenses: In order to project expenses for valuation purposes, the expenses incurred in the operation of the subject property over the past three years have been reviewed. The expenses for 2006 (Annualized), have also been considered. Typical operating expenses for garden apartments in the Pasadena/Los Angeles area, as reported by IREM have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property and outlines the operating budget for the current year.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 31

SUMMARY OF OPERATING HISTORY- BUENA VISTA APARTMENTS

	2003						2004						2005						Annualized 2006 (Thru October)
Item	Actual			Per Unit			Actual			Per Unit			Actual			Per Unit			YTD			Annualized			Per Unit
Gross Rent Potential	$	1,468,296		$	15,960		$	1,563,536		$	16,995		$	1,656,556		$	18,006		$	1,432,190		$	1,718,628		$	18,681
Loss to Lease	$	(11,569	)	$	(126	)	$	(61,520	)	$	(669	)	$	(49,929	)	$	(543	)	$	(50,358	)	$	(60,430	)	$	(657	)
Concessions	$	(351	)	$	(4	)	$	(3,898	)	$	(42	)	$	(24,450	)	$	(266	)	$	(13,476	)	$	(16,171	)	$	(176	)
Vacancy/Credit Loss	$	(66,552	)	$	(723	)	$	(88,012	)	$	(957	)	$	(39,662	)	$	(431	)	$	(15,562	)	$	(18,674	)	$	(203	)
Utility Income	$	20,150		$	219		$	21,299		$	232		$	23,452		$	255		$	20,408		$	24,490		$	266
Other Income	$	61,570		$	669		$	42,348		$	460		$	53,284		$	579		$	34,991		$	41,989		$	456
Effective Gross Income	$	1,471,544		$	15,995		$	1,473,753		$	16,019		$	1,619,251		$	17,601		$	1,408,193		$	1,689,832		$	18,368
Utilities	$	51,083		$	555		$	52,543		$	571		$	54,618		$	594		$	48,350		$	58,020		$	631
Repairs & Maintenance	$	58,515		$	636		$	58,594		$	637		$	78,990		$	859		$	54,105		$	64,926		$	706
Administrative	$	28,620		$	311		$	34,189		$	372		$	26,797		$	291		$	20,262		$	24,314		$	264
Marketing	$	18,783		$	204		$	16,529		$	180		$	18,660		$	203		$	15,395		$	18,474		$	201
Payroll	$	109,811		$	1,194		$	115,789		$	1,259		$	133,746		$	1,454		$	133,530		$	160,236		$	1,742
Management	$	61,978		$	674		$	61,288		$	666		$	67,409		$	733		$	58,326		$	69,991		$	761
Insurance	$	44,243		$	481		$	45,061		$	490		$	43,470		$	473		$	43,629		$	43,629		$	474
Real Estate Taxes	$	78,218		$	850		$	81,729		$	888		$	83,880		$	912		$	72,018		$	72,018		$	783
Total Expenses	$	451,251		$	4,905		$	465,722		$	5,062		$	507,570		$	5,517		$	445,615		$	534,738		$	5,812
Net Operating Income	$	1,020,293		$	11,090		$	1,008,031		$	10,957		$	1,111,681		$	12,083		$	962,578		$	1,155,094		$	12,555

Utilities	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject’s historical utilities expense range from a low of $555 per unit in 2003 to a high of $594 per unit in 2005. An amount equivalent to $631 per unit is reflected in 2006 (annualized). Utilities are adjusted for anticipated inflation and processed at $650 per unit or $59,800.
Repair & Maintenance:	This category includes general repair and maintenance items, contract services and turnover expenses. The subject’s historical repair and maintenance expense ranges from a low of $636 per unit in 2003 to a high of $859 per unit in 2005. An amount equivalent to $706 per unit is annualized in 2006. The repairs and maintenance expense is estimated at $700 per unit or $64,400.
Administrative	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense ranges from a low of $291 per unit in 2005 to a high of $372 per unit in 2004. An amount equivalent to $264 per unit is reflected in 2006 (annualized). Administrative expenses are projected at $290 per unit or $26,680.
Marketing	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense ranges from a low of $180 per unit in 2004 to a high of $204 per unit in 2003. An amount equivalent to $201 per unit is annualized in 2006. Marketing expenses are projected at $200 per unit or $18,400.
Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 32

	The subject’s historical payroll expense ranges from a low of $1,194 per unit in 2003 to a high of $1,454 per unit in 2005. An amount equivalent to $1,742 per unit is annualized in 2006. Payroll expenses are projected at $1,450 per unit or $133,400.
Management	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.2% of Effective Gross Income. A market-oriented fee of 4.5% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject’s management fee is estimated to be $76,771, or $834 per unit.
Insurance	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance expense ranges from a low of $473 per unit in 2005 to a high of $490 per unit in 2004. An amount equivalent to $474 per unit is reflected in 2006 (annualized). Insurance expenses are projected at $475 per unit or $43,700.
Taxes	As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $224,000 or $2,435 per unit.
Reserves for Replacements	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Given the age of the subject property, a reserve for replacement allowance aligned with the higher end of the range of $350 per unit or $32,200 is estimated for the subject property.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provide a return on owner’s equity. We have estimated the NOI to be $1,026,682. The subject’s income and expense pro forma is summarized below.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 33

OPERATING PRO FORMA

Gross Potential Rent	$	1,724,136		$	18,741
Loss to Lease	$	(51,724	)	$	(562	)
Concessions	$	(17,241	)	$	(187	)
Vacancy/Credit Loss	$	(43,103	)	$	(469	)
Utility Income	$	25,000		$	272
Other Income	$	51,724		$	562
Effective Gross Income	$	1,706,033		$	18,511
Utilities	$	59,800		$	650
Repairs & Maintenance	$	64,400		$	700
Administrative	$	26,680		$	290
Marketing	$	18,400		$	200
Payroll	$	133,400		$	1,450
Management	$	76,771		$	834
Insurance	$	43,700		$	475
Real Estate Taxes	$	224,000		$	2,435
Reserves	$	32,200		$	350
Total Expenses	$	679,351		$	7,384
Net Operating Income	$	1,026,682		$	11,160

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.
Market Extraction	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

SUMMARY OF MARKET DERIVED OVERALL RATES

Sale 1

Sale 2

Sale 3

Sale 4

Sale 5

Name

The Sedona

Del Prado

Montego Palms

Woodbridge

Chateau

Sale Date

Jul-06

Jun-06

May-06

Aug-05

May-05

Cap Rate (OAR)

5.8

%

5.9

%

5.5

%

5.8

%

4.9

%

The sales exhibit overall rates that fall within a range from 4.9% to 5.9% and produce an average of 5.6%, with the majority of the rates in the range of $5.5% to 5.9%. The sales represent transactions of late 1960s to mid 1980s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are situated in Los Angeles area locations that demonstrate generally similar demographic characteristics of the subject

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 34

	neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate in the range of 5.5% to 6.0% or approximately 5.75% is suggested.
Survey of Investors	The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the Third Quarter 2006` Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. Capitalization rates in the Los Angeles area are generally aligned with the low end of the survey range and below the national average. The rates produced by the sales outlined above are appropriately aligned with the low end of the survey range.
Conclusion	The sales exhibit overall rates that range from 4.9% to 5.9% and produce an average of 5.6%. Based on the indicators exhibited by the sales data and confirmed through review of investor surveys, an appropriate cap rate for the subject property is concluded to be 5.75%.

Valuation: Capitalizing the estimated Net Operating Income of $986,094 by a 5.75% rate results in a value conclusion of $17,900,000, rounded ($1,026,682 NOI ÷ 5.75% OAR = $17,855,339).

Final Value: $17,900,000

THE SALES COMPARISON APPROACH

The Sales Comparison Approach to value is the process of comparing recent sales of competitive properties. The estimated value derived via this approach represents the probable price at which the subject property would be sold by a willing seller to a willing buyer as of the date of value.

To estimate the property value by the Sales Comparison Approach, five multifamily apartment building sales, which are summarized in the following table, have been examined and analyzed. All of the sales are garden style apartments with similar physical characteristics within the Los Angeles area apartment market. The appraisal indicators exhibited by the sales data outlined in the following chart are utilized for purposes of estimating a value for the subject via the Sale Comparison Approach.

The price per apartment unit has been relied upon as the unit of comparison in this approach. The comparative process involves judgment as to the similarity between the subject property and the comparable sale property with regard to a variety of factors affecting value such as location, age and condition of the structure, market conditions, rent levels, property rights conveyed, financing terms, conditions of sale, operational efficiencies and other factors.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 35

ANALYSIS OF SALES: This approach relies on an active market. Sufficient data from the Los Angeles/Pasadena area exists to formulate a value via the Sales Comparison Approach. Below are five sale comparables of similar vintage garden style apartments with similar characteristics to the subject property.

SUMMARY OF COMPARABLE BUILDING SALES

Sale No.	1	2	3	4	5
Name	The Sedona On Laurel	Del Prado	Montego Palms	Woodbridge	Chateau
Location	5717 Laurel Canyon	9150 Florence	385 S Catalina Ave	1101 Sepulveda Blvd	4524 N Clybourn
	North Hollywood, CA	Downey, CA	Pasadena, CA	Torrance, CA	Burbank, CA
Sales Price	$9,900,000	$9,425,000	$18,700,000	$42,800,000	$23,700,000
Sale Date	18-Jul-2006	2-Jun-2006	16-Mar-2006	1-Aug-2005	12-May-2005
Year Built	1986	1969	1973	1973	1974
No. of Units	54	56	84	214	110
Net Rentable Area (SF)	48,457	80,006	83,304	192,094	110,566
Avg. Unit Size (SF)	897	1,429	992	898	1,005
Occupancy	95%	97%	98%	95%	95%
Price/SF	$204.30	$117.80	$224.48	$222.81	$214.35
Price/Unit	$183,333	$168,304	$222,619	$200,000	$215,455
Net Income	$575,625	$555,243	$1,029,617	$2,482,630	$1,164,315
NOI/SF	$11.88	$6.94	$12.36	$12.92	$10.53
NOI/Unit	$10,660	$9,915	$12,257	$11,601	$10,585
Cap Rate (OAR)	5.8%	5.9%	5.5%	5.8%	4.9%
EGIM	11.4	11.4	12.7	11.8	13.4
Expense Ratio (OER)	34%	33%	30%	31%	34%

Comparable #1: This is the July 2006 sale of a 214-unit apartment complex that is located in North Hollywood, approximately 13.5 miles northwest of the subject property. The alternative location of the comparable property is rated as being inferior to that of the subject property. Built in 1986, construction is wood frame with stucco and wood trim exterior and flat built-up roof. This property is situated on 0.74 acres. Units include one and two-bedroom floor plans. Amenities include swimming pool, spa, security entrance, covered parking, picnic area and laundry facility. Unit amenities include standard kitchen appliances, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 897 square feet is similar to the subject’s 846 average square foot unit size.

In comparison to the subject, this property is superior in terms of age and condition and inferior as to location. Off setting adjustments will be applied to the sales price paid for this comparable.

Comparable #2: This is the June 2006 sale of a 56-unit apartment complex located approximately 13.5 miles southeast of the subject property, in the City of Downey. The alternative location of the comparable property is rated as being inferior to that of the subject property. This property was developed in 1969. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.7 acres. Apartment units include one, two and three-bedroom floor plans. Amenities include swimming pool, club house, fitness center, security entrance, spa and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, ceiling fans and mini-blinds. The comparable’s average unit size of 1,429 square feet is larger than the subject’s 846 average square foot unit size.

In comparison to the subject, this property is inferior in terms of location, but is superior with regards to average unit size. An upward adjustment will be made to the sales price per unit paid for this comparable for inferior location, and a downward adjustment for superior unit size.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 36

Comparable #3: This is the March 2006 sale of a comparable property located approximately one mile east of the subject property in Pasadena. The location of the comparable property is rated as being similar to that of the subject. This property consists of an 84-unit apartment complex developed in 1973. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.2 acres. Apartment units include one and two-bedroom floor plans. Amenities include swimming pool, spa, recreation room, security entrance and laundry facility. Unit amenities include standard kitchen appliances, central a/c, patio/balcony, mini-blinds and ceiling fans. The comparables’ average unit size of 992 square feet is superior to the subject’s 846 average square foot unit size.

In comparison to the subject, this property is superior in terms of average unit size, which requires a downward adjustment to the sales price paid for this comparable.

Comparable #4: This is the August 2005 sale of a 214-unit apartment complex that is located in the City of Torrance, approximately 24 miles southwest of the subject property. The alternative location of the comparable property is rated as being similar to that of the subject property. Built in 1973, construction is wood frame with stucco and wood trim exterior and flat built-up roof. This property is situated on 10.2 acres. Units include one and two and three-bedroom floor plans. Amenities include swimming pools, gated access, recreation room and laundry facility. Unit amenities include standard kitchen appliances, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 898 square feet is similar to the subject’s 846 average square foot unit size.

In comparison to the subject, this property is generally similar to the subject property in all aspects. No significant adjustments are warranted.

Comparable #5: This is the May 2005 sale of a comparable property located approximately 13 miles west of the subject property, in the City of Burbank. The alternative location of the comparable property is rated as being slightly superior to that of the subject. This property consists of a 110-unit apartment complex developed in 1974. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.3 acres. Apartment units include one and two-bedroom floor plans. Amenities include swimming pool, spa, fitness center, elevator, gated covered parking and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, fireplace, ceiling fans, central a/c and mini-blinds. The comparable’s average unit size of 1,005 square feet is larger than the subject’s 846 average square foot unit size.

In comparison to the subject, this property is superior in terms of location and average unit size, which requires downward adjustment to the sales price paid for this comparable.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 37

COMPARABLE SALES ADJUSTMENT GRID

Sale No.	1		2		3		4		5
Sales Price/Unit	$183,333		$168,304		$222,619		$200,000		$215,455
Conditions of Sale	0.0	%	0.0	%	0.0	%	0.0	%	0.0%	%
Adjusted Price	$183,333		$168,304		$222,619		$200,000		$215,455
Time	0.0	%	0.0	%	3.0	%	0.0	%	0.0	%
Time Adjusted Price	$183,333		$168,304		$222,619		$200,000		$215,455
Location	10.0	%	20.0	%	0.0	%	0.0	%	-5.0	%
Age/Condition	-10.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Unit Size/Utility	0.0	%	-15.0	%	-5.0	%	0.0	%	-5.0	%
Amenities	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Total Adjustments (%)	0.0	%	5.0	%	-5.0	%	0.0	%	-10.0	%
Adjusted Sale Price	$183,333		$176,719		$211,488		$200,000		$193,909

Source: Adjustments by KTR.

The unadjusted sales prices range from $168,304 to $222,619 per unit. After adjustment, the comparable sales illustrate a range from $176,719 to $211,488 per unit with an average of $193,090 per unit. Three of the five sales required adjustments for location. One of the sales required adjustment because of superior age and condition and three of the sales required adjustment for superior average unit size. Based on the adjustments considered and indicators exhibited by the sales data and equal emphasis placed on all of the sales, a value of $192,000 per unit is estimated for the subject property. Application of the $192,000 per unit value indicator to the 92 units comprising the subject property results in a value estimate of $17,700,000, rounded.

$192,000 x 92 units = $17,664,000

EGIM ANALYSIS: The sales illustrate EGIMs that range from 11.4 to 13.4. Important in selecting an appropriate EGIM is the review of corresponding operating expenses. There is an inverse relationship which generally holds among EGIMs and operating expenses. Properties which have higher expense ratios typically sell for relatively less and therefore produce a lower EGIM. The operating expense ratios for the sales range from 30% to 34%.

In selecting an appropriate EGIM, consideration must be given to the operating expense ratio estimated for the subject. Based on the income and expenses estimated for the subject property in the Income Approach, the subject’s operating expense ratio is calculated at 40%. The subject’s expense ratio is above the high end of the range of ratios exhibited by the sales data, indicating that an appropriate EGIM would be below the low end of the comparable range. In consideration of the preceding, an EGIM of 10.5 is concluded.

Based on the effective gross income of $1,706,033 estimated for the subject property, a value indication of $17,900,000 (rounded) is concluded.

$1,706,033 x 10.5 = $17,913,347 or $17,900,000, rounded

CONCLUSION: The noted value indicators utilizing the sales price per unit and EGIM methods are $17,700,000 and $17,900,000 respectively. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when concluding to a final value via the Sales Comparison Approach of $17,800,000.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Page 38

As such, the Market Value of the subject property’s Fee Simple Interest via the Sales Comparison Approach is therefore estimated at:

Value via the Sales Comparison Approach	$17,800,000
RECONCILIATION
Cost Approach	N/A
Income Capitalization Approach	$17,900,000
Sales Comparison Approach	$17,800,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE $17,900,000

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

ADDENDA

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

SUBJECT PHOTOGRAPHS

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

VIEW OF PROPERTY FROM EAST BELLEVUE DRIVE

VIEW OF MANAGEMENT/LEASING OFFICE

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

VIEW OF COMMON AREA HALLWAY

VIEW OF TYPICAL BUILDING ELEVATION

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

VIEW OF POOL AREA

GARAGE PARKING

\

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

VIEW OF ELEVATORS

VIEW OF FITNESS CENTER

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE #1

COMPARABLE #2

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE #3

COMPARABLE #4

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE #5

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE SALES

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #1

Name:	The Sedona On Laurel
Location:	5717 Laurel Canyon North Hollywood, CA
Date of Sale:	July 18, 2006
Grantor:	Plaza 6000 Partners LP (et al)
Grantee:	Mansfield Circle LLC (et al)
Consideration:	$9,900,000
Terms:	Cash to seller
Price/Unit:	$ 183,333
Price/SF:	$ 204.30

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #1 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	9,900,000
Net Rentable Area (SF):		48,457
Number of Units:		54
Average Unit Size (SF):		897
Occupancy		95	%
Year Built		1986
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	867,825		$	16,071		$	17.91
Expenses (including reserves)		(292,200	)		(5,411	)		(6.03	)
Net Operating Income	$	575,625		$	10,660		$	11.88
EGIM		11.4
OER (including reserves)		34	%
OAR		5.8	%

Comments:                           Three-story wood frame construction in average condition at time of sale.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #2

Name:	Del Prado Apartments
Location:	9150 Florence Downey, CA
Date of Sale:	June 2, 2006
Grantor:	William M Grant Trust
Grantee:	MC Del Prado LLC (et al )
Consideration:	$9,425,000
Terms:	Cash to seller
Price/Unit:	$ 168,304
Price/SF:	$ 117.80

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #2 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	9,425,000
Net Rentable Area (SF):		80,006
Number of Units:		56
Average Unit Size (SF):		1,429
Occupancy		97	%
Year Built		1969
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	824,494		$	14,723		$	10.31
Expenses (including reserves)		(269,251	)		(4,808	)		(3.37	)
Net Operating Income	$	555,243		$	9,915		$	6.94
EGIM		11.4
OER (including reserves)		33	%
OAR		5.9	%

Comments:                           Three-story wood frame construction.. Property was in average condition at the time of sale.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #3

Name:	Montego Palms
Location:	385 S. Catalina Avenue Pasadena, CA
Date of Sale:	June 2, 2006
Grantor:	Montego Palms Apartments LP
Grantee:	PPC Montego Palms LLC
Consideration:	$18,700,000
Terms:	Cash to seller
Price/Unit:	$ 222,619
Price/SF:	$ 224.48

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #3 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	18,700,000
Net Rentable Area (SF):		83,304
Number of Units:		84
Average Unit Size (SF):		992
Occupancy		98	%
Year Built		1973
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,478,056		$	17,596		$	17.74
Expenses (including reserves)		(448,439	)		(5,339	)		(5.38	)
Net Operating Income	$	1,029,617		$	12,257		$	12.36
EGIM		12.7
OER (including reserves)		30	%
OAR		5.5	%

Comments:                           Three-story wood frame construction. Property was in average condition at the time of sale.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #4

Name:	Woodbridge
Location:	1101 Sepulveda Boulevard Torrance, CA
Date of Sale:	August 1, 2005
Grantor:	Fairfield Woodbridge LP
Grantee:	Pacifica Woodbridge LLC
Consideration:	$42,800,000
Terms:	Cash to seller
Price/Unit:	$ 200,000
Price/SF:	$ 222.81

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #4 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	42,800,000
Net Rentable Area (SF):		192,094
Number of Units:		214
Average Unit Size (SF):		898
Occupancy		95	%
Year Built		1973
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	3,616,599		$	16,900		$	18.83
Expenses (including reserves)		(1,133,969	)		(5,299	)		(5.91	)
Net Operating Income	$	2,482,630		$	11,601		$	12.92
EGIM		11.8
OER (including reserves)		31	%
OAR		5.8	%

Comments:                           Two-story wood frame construction in average condition at time of sale.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #5

Name:	Chateau Toluca I
Location:	4524 N. Clybourn Burbank, CA
Date of Sale:	May 12, 2005
Grantor:	CTF3-Burbank LLC
Grantee:	Chateau Toluca Apartments 110 LLC
Consideration:	$23,700,000
Terms:	Cash to seller
Price/Unit:	$ 215,455
Price/SF:	$ 214.35

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

Improved Sale #5 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	23,700,000
Net Rentable Area (SF):		110,566
Number of Units:		110
Average Unit Size (SF):		1,005
Occupancy		95	%
Year Built		1974
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,773,495		$	16,123		$	16.04
Expenses (including reserves)		(609,180	)		(5,538	)		(5.51	)
Net Operating Income	$	1,164,315		$	10,585		$	10.53
EGIM		13.4
OER (including reserves)		34	%
OAR		4.9	%

Comments:                           Three-story wood frame construction. Property was in average condition at the time of sale.

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

REGIONAL LOCATION MAP

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

NEIGHBORHOOD MAP

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE RENTALS MAP

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

COMPARABLE SALES MAP

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

QUALIFICATIONS

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

WILLIAM L. CORBIN, MAI

SENIOR MANAGING DIRECTOR

WILLIAM CORBIN, MAI is Senior Marketing Director and manager of the Western Regional Office of KTR Valuation & Consulting Services, LLC, located at 1801 Century Park East, Suite 2210, Los Angeles, California 90067. His direct telephone number is 310/ 203-0699

Education

     University of California at Los Angeles, 1977

Bachelor of Arts
Major in Economics

     University of Southern California, 1980

Master of Business Administration
Concentration in Real Estate and Finance

Designations

     MAI Member — Appraisal Institute

Licenses

California Certified General Real Estate Appraiser

Arizona Certified General Real Estate Appraiser

Affiliations

     National Council of Real Estate Investment Fiduciaries (NCREIF) designated representative

     -Valuation sub-committee co-chairperson for Standardized Commercial Appraisal Report

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

WILLIAM L. CORBIN, MAI

Experience

Mr. Corbin began his career with an intensive education in real estate market analysis as a consultant with Robert Charles Lesser & Co. from 1980 to 1983. With RCLCo, he performed over 75 market supply and demand, economic feasibility, and strategic planning assignments for prominent regional and national clients. During this very active construction period, nationally, Mr. Corbin had the opportunity to visit and analyze commercial real estate market conditions is over 20 major metropolitan areas in the Western and Central U.S.

As a mortgage banker from 1983 to 1992, Mr. Corbin arranged a wide variety of financing structures with institutional lenders and equity investors, including permanent loans, construction loans, and joint ventures. In total with George Smith Financial Services/Grubb & Ellis and Center Financial Group, he worked with over 90 institutions and closed over 150 transactions totaling in excess of $700,000,000.

As an appraiser, Mr. Corbin has performed numerous current value narrative appraisals for national and regional institutional lenders and investors. His previous experience in commercial real estate finance gives him particular insight to the capital and investment markets and their impact on institutional real estate activity and values. He has performed a wide variety of appraisals of warehouse distribution buildings, industrial and business parks, office buildings, shopping centers, and apartments. He worked with Landauer Associates from 1992 to 1995, managing the Aetna Realty Investors account for western region property appraisals.

Currently with KTR ten years, Mr. Corbin is responsible for managing the Los Angeles regional office, developing and managing institutional accounts, as well as performing direct valuation work for those clients. He also heads KTR’s national pension fund valuation practice and is the firm’s designated representative to NCREIF, a national organization of pension fund advisors that creates and implements operational policy standards for the industry. Mr. Corbin is currently the chairperson for NCREIF’s valuation sub-committee that is contributing to developing a standardized commercial appraisal report in conjunction with the Appraisal Institute that will become the valuation industry standard.

In addition to professional experience, Mr. Corbin has served as a real estate course instructor and conference collaborator for UCLA Extension

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

WILLIAM L. CORBIN, MAI

Following is a list of representative clients Mr. Corbin has performed services for:

Clients — As Appraiser and Consultant
Aetna Realty Investors, Inc.
Bechtel Corporation
CALTRANS
Catellus Corp.
Philips, North America
KOAR Hotel Group
Copley Institutional Realty
Estate of James Campbell
Franklin Properties, Inc.
Triton Energy Corp
Union Oil/Moreland Development
Kaiser Aluminum Corp.
Lockheed Air Terminal, Inc.
Hong Kong and Shanghai Bank Corp.
PNC Bank
CALSTRS
Heller Financial
Chase Commercial Mortgage Banking
Daiwa Securities America
Lennar Partners
SSR Realty Advisors
Douglas, Emmett Realty Advisors
Dresdner Bank
Prudential Mortgage Capital
TIAA-CREF
Principal Real Estate Investors
RREEF
Eurohypo Bank
Massachusetts Mutual Life
McCullough Oil Properties
Mobil Land Development
Chevron Land Development
Home Savings of America
Safeway Stores
Santa Anita Realty
Santa Fe Land Improvement Co.
Taft Broadcasting Co.
Comerica Bank
Trammell Crow Company
Bank of New York
Majestic Realty
Canadian Imperial Bank of Commerce
Sakura Bank
Newfield Enterprises
J. P. Morgan Mortgage Capital
Lend Lease Mortgage Capital
Whitehall Fund II
AMB Institutional Realty Advisors
TA Associates Realty
LACERA
Henderson Global Investors
Prudential Insurance Company of America
INVESCO
Cornerstone Real Estate Advisers
Deutsche Bank

Clients — As Mortgage Banker
AEtna Life & Casualty
BALCOR
Citicorp REIG
Forest City Properties
Heller Financial Services
Home Savings of America
MetroBank
Principal Mutual Life
Societe Generale
U.S. Bancorp
William Morris Agency
IBEW Pension Fund
AFL-CIO Housing Trust
Bank of America
Creative Artists Agency
General Electric Credit
Hollywood Center Studios
Industrial Bank of Japan
Massachusetts Mutual Life
Security Pacific National Bank
Textron Financial Services
Union Bank
DeAnza Group, Inc.
Nationwide Life

STEVEN J. GOLDBERG, MAI, CCIM

Buena Vista Apartments	December 8, 2006
Pasadena, California	Addenda

SENIOR MANAGING DIRECTOR

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Valuation & Consulting Services, LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

EX-99.(C)(18)

SUMMARY APPRAISAL REPORT
OF
CROSSWOOD
PARK APARTMENTS
6801 SAN TOMAS DRIVE
CITRUS HEIGHTS, CALIFORNIA

     224 South Michigan Avenue, Chicago, IL 60604
t e l 312.386.3192 f a x 312.386.9820
w w w . f i r s t a m . c o m

Ms. Martha Long	December 8, 2006
General Partner
VMS National Properties JV
55 Beattie Place Greenville, SC 29601
Re: Crosswood Park Apartments          6801 San Tomas Drive
Citrus Heights, California

Dear Ms. Long:

At your request, KTR Valuation & Consulting Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of November 30, 2006. The date of value corresponds to the date the subject property was most recently inspected by the appraiser.

The subject property consists of a 10.6-acre tract of land improved with a 180-unit garden-style apartment complex known as the Crosswood Park Apartments. Construction of the improvements was reportedly completed in 1976. The improvements were observed to be in good physical condition. Amenities common to all units include electric kitchen appliances, patios/balconies, wood-burning fireplaces and mini-blinds. Community amenities include on-site management/leasing office, swimming pool, fitness center, clubhouse, sauna, tennis courts and basketball court. The complex contains 194,982 rentable square feet, which suggests an average unit size of 1,083 square feet.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

224 South Michigan Avenue, Chicago, IL 60604
t e l 312.386.3192 f a x 312.386.9820
w w w . f i r s t a m . c o m

Ms. Martha Long
VMS National Properties
December 8, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 30, 2006, is:

FIFTEEN MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS
($15,750,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,
KTR VALUATION & CONSULTING SERVICES, LLC
By:	John Grochowiak
	Appraiser
By:	Dean Hobart, AIA
	Senior Managing Director – Vice President
By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director – Vice President

224 South Michigan Avenue, Chicago, IL 60604
t e l 312.386.3192 f a x 312.386.9820
w w w . f i r s t a m . c o m

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page i

CERTIFICATE OF VALUE

We certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, are my personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, and Title XI (and amendments) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) effective August 9, 1990.

John Grochowiak made a personal inspection of the property that is the subject of this appraisal. Steven Goldberg and Dean Hobart did not inspect the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, Steven J. Goldberg, MAI, has completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

KTR VALUATION & CONSULTING SERVICES, LLC

By:	John Grochowiak	By:	Dean Hobart, AIA	By:	Steven J. Goldberg, MAI, CCIM
	Appraiser		Senior Managing Director		Senior Managing Director
			Vice President		Vice President

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page ii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page iii

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page iv

SUBJECT PROPERTY PHOTOGRAPH

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page v

TABLE OF CONTENTS

Title		Page
Letter of Transmittal
Certificate of Value		i
Basic Assumptions and Limiting Conditions	ii
Subject Photograph	iv
Table of Contents		v
Executive Summary		6
Introduction and Premises of the Appraisal		7
Regional Overview		8
Neighborhood Overview		12
Site Analysis		13
Real Estate Taxes		15
Zoning		16
Description of Improvements		16
Apartment Market Overview		18
Economic Rent Analysis		20
Highest and Best Use		27
Valuation Procedure		28
Income Capitalization Approach		29
Sales Comparison Approach		34
Reconciliation and Final Value Conclusion		36

ADDENDA
Subject Photographs
Comparable Rental Photographs
Comparable Sale Photographs
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map
Qualifications

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 6

EXECUTIVE SUMMARY

Property:	Crosswood Park Apartments
Location:	6801 San Tomas Drive, Citrus Heights, California
Assessors Parcel ID No:	Sacramento County Parcel #229-0100-011-0000
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 30, 2006
Date of Report:	December 8, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of a 10.6-acre tract of land improved with a 180-unit garden-style apartment complex known as the Crosswood Park Apartments. Construction of the improvements was reportedly completed in 1976. The complex contains 194,982 rentable square feet, which suggests an average unit size of 1,083 square feet.
Location:	The subject property is in the western portion of Citrus Heights, immediately south of Auburn Blvd. and 0.75 miles west of Sylvan Rd.
Zoning:	The subject site is zoned RD-20 by the City of Citrus Heights. The intended use of land in this zoning district is high-density multifamily residential development at a density not to exceed 20 units per acre.
Flood Zone:	According to the Federal Emergency Management Agency (FEMA), the property is within Zone X, an area outside any special flood hazard areas as defined by FEMA. FEMA Map No. 0602620085E, dated 07/16/1998.
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months
Valuation Assumptions:
Average Market Rent (per Unit per Month)	$1,030
Market Vacancy/Credit Loss	7.5%
Operating Expense Ratio	53.8% of EGI
Net Operating Income	$945,425
Overall Capitalization Rate	6.1%
Final Estimate of Market Value, by Approach
Cost Approach:	N/A
Income Approach:	$15,750,000
Sales Comparison Approach:	$15,750,000
Final Estimate of Market Value:	$15,750,000

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 7

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment:	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal:	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 30, 2006. It is for the internal use of AIMCO to facilitate asset evaluation, and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised:	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:
	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)”.
Marketing Period:	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006, indicates that apartment properties in the national market have an average marketing time of 5.58 months, lower than the average of 5.92 months reported one year ago. This estimate seems reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History:	Property tax records of the Sacramento County Assessor indicate that VMS National Property JV is the current owner of record. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 8

Most Likely Buyer:	National and regional investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value:	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
	1.     buyer and seller are typically motivated;
	2.     both parties are well-informed or well advised, and acting in what they consider their best interests;
	3.     a reasonable time is allowed for exposure in the open market;
	4.     payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
	5.     the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

REGIONAL OVERVIEW
	The subject property is within the city limits of Citrus Heights, Sacramento County, California, which is part of the 4-county Sacramento-Arden-Arcade-Roseville, CA Metropolitan Statistical Area (MSA). The subject site is approximately 12 miles northeast of downtown Sacramento and less than 5 miles northeast of McClellan Air Force Base. Citrus Heights is a close-in bedroom suburb of Sacramento.
Overview:	The Sacramento CMSA is in the north central part of the state and is the 25th largest metropolitan area in the United States with approximately 2.1 million people as of July 1, 2005. Sacramento County contains approximately 75% of the metropolitan population. The other 3 counties include El Dorado, Placer and Yolo. The Lake Tahoe region is in El Dorado and Placer Counties, approximately 75 miles northeast of Sacramento. Yolo County is adjacent to Solana and Napa Counties, which are part of the San Francisco CMSA. Downtown San Francisco is approximately 75 miles southwest of Sacramento via I-80. Reno, NV is approximately 120 miles northeast via I-80. Sacramento is the state capital.
	Historical population growth patterns are expanding suburban rings around the Sacramento urban core. Some of the current suburban communities began as

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 9

small towns that eventually merged into the metropolitan urbanized area, which now extends beyond 25 miles from the central districts. The urban areas in the Lake Tahoe communities, which are included in the CMSA because of their location in El Dorado and Placer Counties, are separated from Sacramento by national forests and mountain ranges. Most of the growth in Sacramento has been to the northeast (toward Roseville and Rocklin in Placer County northeast of the subject) and to the south toward the city of Elk Grove.

Population:

During the period between 1990 and 2000, the CMSA’s population grew at an average annual compound rate slightly above the state and national averages. Regional population growth during the 1990s was very strong as in-migration occurred from the very high cost areas of San Francisco and San Jose. In addition, state government grew and the regional economy expanded. This growth is expected to slow due to a decreasing availability of large developable suburban parcels. The area surrounding the subject is expected to grow slightly faster as denser infill development continues.

POPULATION TRENDS

					Avg Annual							Avg Annual
	Census		Census		% Change			Estimated		Projected		% Change
Region	1990		2000		1990-2000			2005		2010		2005-10
1-mile Radius		16,187		16,965		0.48	%		18,704		20,531		0.98	%
5-mile Radius		312,355		354,029		1.33	%		398,689		443,872		1.13	%
Sacramento CMSA		1,481,122		1,796,857		1.95	%		2,078,408		2,347,528		1.29	%

Source: DemographicsNow

According to the US Census, the CMSA is the 25th largest in the country in terms of people, between Kansas City, MO-KS and Cincinnati-Hamilton, OH-KY-IN, and it ranked 23rd in terms of the number of additional people added during the 1990-to-2000 period, between Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD and San Diego, CA. However, it ranked only 56th in terms of percentage change during the same period, with an 21.3% increase (between Albuquerque, NM and Jacksonville, FL) – reflecting the average slower growth typically experienced within larger urbanized areas.

Households:

Household formation increased consistent with the population growth. Future increases in the near term are expected to be similar to the overall population trends. Most of the population growth in the suburban ring is anticipated to be associated with growing families. The subject area is expected to continue to mature with aging households and not a lot of new families.

HOUSEHOLD TRENDS

					Avg Annual							Avg Annual
	Census		Census		% Change			Estimated		Projected		% Change
Region	1990		2000		1990-2000			2005		2010		2005-10
1-mile Radius		6,467		7,105		0.99	%		7,495		7,948		0.60	%
5-mile Radius		117,324		133,586		1.39	%		145,373		157,712		0.85	%
Sacramento CMSA		556,454		665,298		1.96	%		750,153		831,710		1.09	%

Source: DemographicsNow

Income: The subject’s immediate area has a median household income slightly lower than the region. This is expected to continue in the future.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 10

COMPARATIVE INCOME LEVELS

	Per Capita Income	Median Household Income	Average Household Income
1-mile Radius	$23,245	$46,535	$55,487
5-mile Radius	$24,491	$51,106	$65,655
Sacramento CMSA	$25,297	$51,451	$68,453

Source: DemographicsNow

Economic Conditions:	According to the Federal Reserve November 29, 2006 Beige Book, economic activity in the San Francisco Twelfth District expanded at a moderate pace during the survey period of October through mid-November. Wage growth continued overall. Selected worker groups with specialized skills in some industries experienced strong growth. Retail sales rose and demand for services was strong. Output and sales grew in most manufacturing sectors and for producers of agricultural products. Residential construction, sales activity, and price appreciation continued to slow in most areas, while the demand for commercial real estate grew further. District banks reported strong loan demand and good credit quality.
	The CMSA has a Gross Metropolitan Product that ranks 24th in the nation per the most recent March 2006 report on the role of metro economies in the U.S published by the U.S. Conference of Mayors – between that of San Jose-Sunnyvale-Santa Clara, CA and Cleveland-Elyria-Mentor, OH. This was a substantial improvement from the 34th place ranking in 2001. The metro economy was also the 24th fastest growing metro, with an increase of 7.1% in 2004. The metro economy represents 5.5% of the state total.
Employment:	The following table shows the region in terms of industry sector and occupation. No major changes in occupation mix are expected in the near term. According to Sacramento Regional Research Institute, a Joint Venture of SACTO and California State University, Sacramento, in the most recent May 2006 Economy Watch, the Sacramento Region’s Professional & Business Services; Leisure & Hospitality; and Trade, Transportation, & Utilities sectors posted the greatest job gains over the past 12 months. Combined, these three sectors added 16,400 jobs and accounted for about 65 percent of the Region’s net job gain. While Manufacturing continues to see job losses at the statewide level, this sector has maintained positive job growth in the Sacramento Region. Three of the Region’s sectors lost jobs between April 2005 and 2006 including Natural Resources & Mining; Other Services; and Information.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 11

EMPLOYMENT BY INDUSTRIAL SECTOR

	Sacramento-Yolo CMSA
Total Employed 2003		849,242
By Industry
Agriculture/Mining		1.0	%
Construction		8.4	%
Manufacturing		6.6	%
Wholesale Trade		3.2	%
Retail Trade		11.6	%
Transportation/Utilities		4.4	%
Information		3.6	%
Finance/Insurance/Real Estate		8.1	%
Services		43.3	%
Public Administration		9.7	%

By Occupation	Sacramento-Yolo CMSA
White Collar		67.2	%
Management/Business/Financial		15.9	%
Professional		22.1	%
Sales		11.7	%
Administrative Support		17.5	%
Services		14.5	%
Blue Collar		18.3	%
Farming/Forestry/Fishing		0.3	%
Construction/Extraction		5.7	%
Installation/Maintenance/Repair		3.4	%
Production		3.9	%
Transportation/Material Moving		5.0	%

Source: DemographicsNow

According to Sacramento Regional Research Institute, a Joint Venture of SACTO and California State University, Sacramento, in the most recent May 2006 Economy Watch, over the past 2 months, the 6-county Sacramento Region has seen slight declines in its year-over-year employment growth rates. From the recent peak in February 2006, job growth has fallen to 2.8%, reflecting an increase of 25,200 jobs between April 2005 and 2006. Despite the current decline, job growth in April 2006 was still higher than growth rates seen in a number of years and was well above the statewide and national averages.

The area’s current largest private sector employers are shown in the following table. The State of California also employs a large number of people in services and education.

SACRAMENTO MSA — LARGEST NON-GOVERNMENT EMPLOYERS

Company	Industry	Number of Local Employees
Kaiser Permanente	Healthcare		7,283
Raley’s Inc.	Retail Groceries		7,134
Intel Corp.	Semiconductors and Related Devices		6,500
UC Davis Health System	Healthcare		6,449
CHW/Mercy Healthcare Sacramento	Healthcare		6,303
Sutter Medical Center	Healthcare		6,227
SBC	Telecommunications		5,010
Hewlett-Packard Co.	Computer Hardware Manufacturer		4,000
Target Corp.	Retail		3,212
The Home Depot*	Retail		3,200

Source: Sacramento Regional Research Institute, 2006. www.sactoedc.org

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 12

Unemployment:	According to the Bureau of Labor Statistics, the unemployment rate in the Sacramento MSA (3-county metro area) was 3.9% in October 2006, down from a revised 4.4% in October 2005. This compares with an unemployment rate of 4.2% for California and 4.1% for the nation during the same period.
Transportation And Infrastructure:	Transportation throughout the region is largely dependent on the private automobile, which is supplemented by local and county bus services. As such, the region has developed into a series of multiple nodes with good proximity to the regional highway system. Interstate 80 provides the primary east-west access between San Francisco and Reno. North-south access is provided by I-5 to Los Angeles and Portland. California Route 99 (Golden State Highway) parallels I-5 from downtown Sacramento and connects the region to the southern Central Valley cities of Fresno and Bakersfield. Sacramento is also served by an air cargo airport, an international airport, a deep-water shipping port, 2 major Interstate freeways, freight and passenger rail lines, and a regional commuter bus and light-rail system.
Conclusions:	The region’s diversity and strength have helped it maintain a growth rate near or above the national average. Over the next few years, growth is anticipated to be slower than recently experienced as the region continues to mature. The subject property, however, is in a suburban area that is expected to maintain slightly higher than average growth rates as infill development becomes denser over time.
NEIGHBORHOOD OVERVIEW
Location:	The subject property is in the western section of Citrus Heights, immediately south of Auburn Blvd, approximately 0.75 miles west of Sylvan Rd. Situated in close proximity to Interstate 80, a major east/west freeway in Sacramento County, the subject property is accessible to neighborhood services and employment centers. The location of the subject property is rated as good.
Access:	Primary roadways in the neighborhood include the east/west traffic arteries of Auburn Blvd and Greenback Lane and the north/south traffic arteries of Van Maren Lane, Sylvan Blvd and Sunrise Blvd. Crosswood Park provides easy access to Interstate 80, approximately 1.25 miles to the north, which provides access to downtown Sacramento and most major employment/retail centers in Sacramento and Placer Counties.
	The subject neighborhood has excellent access to neighborhood support services and employment centers. Numerous business parks are within a short commute of the subject neighborhood. Sunrise Mall (a major regional shopping center containing Macy’s) is approximately 1.5 miles east of the subject site. Sunrise Blvd. (approximately 1.5 miles east of Crosswood Park) is the major retail destination for eastern Sacramento County. The subject is approximately 0.25 miles from a Costco on Auburn Blvd. In addition, a Wal-Mart Superstore is being constructed adjacent to the Costco on Auburn Blvd. Sacramento County’s regional bus system operates a route on Auburn Blvd. immediately adjacent to the subject. Citrus Heights maintains a public park

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 13

	immediately south of Crosswood Park. Public services, including schools and medical facilities, are in close proximity.
Land Use:	The subject neighborhood is a relatively new and maturing residential district. The area realized much of its growth from the 1970s through the early 1990s. Most of the apartments in the area were built in the 1980s and 1990s. As the growth pattern of the Sacramento area continues northeast along Interstate 80, much of the land in the subject neighborhood has been developed. Approximately 85% of the land area is developed with limited land available to accommodate additional development. Multifamily and commercial development is prevalent along the primary roadways. Public green belts, parks and athletic fields are near the subject site. The predominate land use in the neighborhood is residential, consisting of both single-family and multifamily developments.
Adjacent Land Uses:	South:         Multifamily and public park
	North:         Single-family homes
	East:            Multifamily
	West:          Multifamily
New Construction:	Due to the limited availability of vacant land suitable for development, only limited new construction was noted in the immediate vicinity of the subject property. Most new structures being completed in the immediate vicinity are retail or commercial in nature. No new single-family or multifamily construction was noted during the site inspection. This benefits the subject property, as there does not appear to be any new multifamily supply in the immediate neighborhood.
Change in Current Use	The neighborhood can be classified as being in the mature stage of its life cycle with continued growth as infill. As a result of its good location with access to Sacramento and Placer Counties, growth in the area is anticipated to continue in the form of new development on vacant and underutilized sites.
Conclusion	The property is in the northeastern growth pattern of the Sacramento region, within the city of Citrus Heights. The area is easily accessible from all parts of Sacramento and Placer counties due to its proximity to Interstate 80. As a result of its good location, the area has proven to be a desirable residential and commercial location. Major employers are in close proximity to the subject neighborhood along Greenback Lane and Sunrise Blvd. The presence of major employers in the area has enhanced the desirability of the neighborhood as a residential location. Area residents are offered a broad range of services and excellent access to other parts of the Sacramento area.
SITE ANALYSIS
Location	The site is in western portion of Citrus Heights, along the south side of Auburn Blvd., approximately 0.75 miles west of Sylvan Rd.
Size	The site is irregular in shape and has of a total land area of 10.6 acres.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 14

Excess Land	None
Topography	Generally level and on grade with the bounding street
Site Improvements	The 10.6-acre site is improved with a 180-unit garden-style apartment community known as the Crosswood Park Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	Crosswood Parkway and San Tomas Drive provide direct access to the subject. Both Crosswood Parkway and San Tomas Drive intersect with Auburn Blvd., a major east-west thoroughfare.
Desirability of Location	Good
Access to Major Arteries	Good
Access to Local Arteries	Good
Curb Appeal	Good
Ingress/Egress	Good – Adequate road frontage along a major east-west thoroughfare.
Visibility from Road	Good
Public Transportation	Average
Neighborhood Appearance	Good
Flood Zone Map	According to the Federal Emergency Management Agency, the property is within Zone X, outside any special Flood Hazard Areas (FEMA Map No. 0602620085E, Dated 07/16/1998).
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions that would adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 15

	be obtained for the subject property, which would disclose any land use restrictions that may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Police and Fire Protection	Provided to the site by the city of Citrus Heights
Conclusion	The subject represents a desirable site for multifamily development.
REAL ESTATE TAXES
Assessor’s Parcel No:	229-0100-011-0000 (Sacramento County Assessor Parcel Number)
Ad Valorem Tax Rate (2005)	1.06647% of Net Assessed Value
Payment Due Date	Taxes are paid annually in arrears.
2006 Net Assessed Value	$12,888,875
Tax Analysis	The subject property is under the taxing jurisdiction of Sacramento County. The Proposition 13 Amendment to the California State Constitution limits the maximum annual tax on real property.
	The general tax levy for all agencies cannot exceed 1.0% of the property’s assessed value, except for additional taxes for bonded indebtedness. In addition, agencies may levy direct assessment taxes to pay for services such as lighting maintenance, weed abatement, etc. The average tax rate across the state is approximately 1.25%.
	Real property is reappraised only when a change in ownership occurs, new construction is completed, new construction is partially completed on the lien date (January 1), or a decline in market value occurs (Proposition 8). Except for these instances, real property assessments cannot be increased by more than 2.0% annually, regardless of the rate of inflation.
	Properties with a Proposition 8 assessment must be reviewed by the Assessor each year on January 1, to verify whether the conditions that resulted in a decline in value still exist. Based on market conditions the value may change annually, not to exceed the original Proposition 13 trended base value.
Projected Taxes	The stabilized pro-forma tax liability is based on the hypothetical sale of the subject property at the current appraised value and the application of the current effective tax rate. The hypothetical value is derived in the sales comparison approach. See the income capitalization approach section for additional comments on the amount.
ZONING
Zoning:	The site is zoned RD-20 by the City of Citrus Heights.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Page 16

Permitted Use	The RD-20 zoning designation is intended to accommodate condominiums, townhouses, duplexes and apartments at a density of 20 units per acre. Commercial or retail uses are not permitted.
Maximum Height:	2 stories
Maximum Density:	20 units per acre, or a total of 212 units.
Parking Requirements	Parking requirements depend on use and are subject to site plan review.
Comments:	It appears as though the existing improvements represent an allowed and conforming use of the site with regard to zoning.
DESCRIPTION OF IMPROVEMENTS
The subject improvements consist of a 180-unit garden-style apartment complex known as the Crosswood Park Apartments. The following offers a description of the improvements.
KTR Site Inspector:	John Grochowiak
Date of Inspection:	November 30, 2006
Property Contact:	Katherine Irish — On-site Manager
Year Built:	1976
Number Units:	180
Configuration/Stories:	Garden-style complex, 2 -story residential structures
Net Rentable Area:	194,982 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls:	Wood trim covered in stucco
Roof:	Composition shingle
Doors and Windows:	Exterior entrance doors are hollow core metal. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Ground mounted electric AC condensing units, electric heat
Plumbing:	Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet and sink and fiberglass bathtub/shower combinations. Hot water is provided by individual heaters in each unit.
Electrical:	Property is sub-metered for electric; electricity is paid by the tenant.
Parking and Walkways:	The parking areas and internal roadways are asphalt paved. The streets and parking areas have concrete curbs. Walkways are concrete paved. There is adequate on-site parking provided, some of which is covered.
INTERIOR
Walls and Ceilings:	Walls are painted sheetrock, and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over hardwood in living areas and bedrooms with sheet vinyl or ceramic tile in the kitchens and bathrooms.
Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and stainless steel sink. Appliances include a combination range/oven, microwave, disposal, dishwasher and refrigerator/freezer.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 17

PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes
Fitness Center:	Yes
Clubroom:	Yes
Tennis Court:	Yes
On-site Management Office:	Yes
Laundry Room:	No
Microwave:	Yes
Compactor:	No
Fireplace:	Yes
Balconies/Patios	Yes
Cable TV:	Yes
In-Unit Washer/Dryers	Yes
Perimeter Fencing:	Yes
Access Controlled Entry:	No
Other:	Covered parking, indoor sauna, basketball court, and man-made creek

The following chart illustrates the property’s unit breakdown and size.

CROSSWOOD PARK APARTMENTS – UNIT MIX

		No. of
Name	Unit Type	Units		Size (SF)		Total (SF)
Shasta	1BR/1BA		66		802		52,932
Sequoia	2BR/1BA		12		950		11,400
Sierra	2BR/1.5BA Townhouse		81		1,250		101,250
Yosemite	3BR/2BA Townhouse		21		1,400		29,400
	Totals/Average		180		1,088		194,982

CONDITION/MAINTENANCE

Overall Condition:
Landscaping:
Parking:
Sidewalks/Curbs:
Walls/Fences:
Refuse Area:
Basement:
Health Club:
Club Room:
Exterior Walls:
Roofs:
Stairs:
Lobby/Hallways:
Entry Doors:
Patios/Balconies:
Elevators: Average
Average
Average
Average
Average
Average
N/A
Average
Average
Average
Average
Average
N/A
Average
Average
Average

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 18

Apartment Interiors:
	Overall:	Average
	Kitchen Equipment:	Average
	Mechanical Equipment:	Average
	Bathroom:	Average
	Walls/Ceilings:	Average
	Layout:	Average
	Light and View Quality:	Average
Cosmetic Repairs:		Our physical inspection revealed that the subject property is in average condition.
Deferred Maintenance:		No elements of deferred maintenance were noted during the appraiser’s inspection of the property and on-site management reported none.
Comparability:		Similar to competing properties of the same vintage.
Observed Effective Age:		30 years (similar to the actual age of the improvements)
Economic Life:		50 years (per Marshall Valuation Service Manual)
Remaining Economic Life:		20 years
General Comments:		Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

APARTMENT MARKET OVERVIEW

Supply: The following table shows historical inventory and construction trends, current estimates and short-term projections by REIS as of the 3^rd Quarter 2006 for the Citrus Heights submarket. The total number of rental units has remained stable for the period from 2001 to 2004 while declining slightly in 2005. It is projected that the number of units will not increase over the 4-year period from 2006 to 2010. This is shown in the following table. Essentially no new product is being added to the Citrus Heights submarket. This obviously benefits the subject property since additions to supply are non-existent.

SUBMARKET INVENTORY

		Unit		Unit		Annual
	Year	Inventory		Completions		% Change
Historical	2001		6,677		0		0.0	%
Historical	2002		6,677		0		0.0	%
Historical	2003		6,677		0		0.0	%
Historical	2004		6,677		0		0.0	%
Historical	2005		6,677		0		-0.3	%
Current	3Q 2006		6,655		0		0.0	%
Estimated	2006		6,655		0		0.0	%
Projection	2007		6,655		0		0.0	%
Projection	2008		6,655		0		0.0	%
Projection	2009		6,655		0		0.0	%
Projection	2010		6,655		0		0.0	%

Source: REIS MetroTrend Futures 3Q 2006 Citrus Height Submarket, licensed to KTR

Vacancy: Vacancy rates increased from 3.4% to 7.0% from 2001 to 2003 and then declined to 5.9% by end of 2005. The rate has increased slightly during 2006, and is 6.5% as of 3^rd Quarter. However, approximately a third of the

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 19

surveyed properties have vacancy rates under 3.2%, and the median is 4.9%. The subject has a current vacancy rate of 2%, which is superior to the submarket average but consistent with the median performance levels. The average vacancy rate is expected to continue to fall over the next several years due to continue population growth and a declining number of readily developable sites.

SUBMARKET VACANCY TRENDS

		Vacancy
	Year	Rate
Historical	2001		3.4	%
Historical	2002		5.2	%
Historical	2003		7.0	%
Historical	2004		6.6	%
Historical	2005		5.9	%
Current	3Q 2006		6.5	%
Estimated	2007		5.8	%
Projection	2008		5.4	%
Projection	2009		4.7	%
Projection	2010		4.5	%

Source: REIS MetroTrend Futures 3Q 2006 Citrus Height Submarket, licensed to KTR

Rental Rates: Concurrent with decreased vacancies, market asking rents have generally increased in every year since 2001 for the Citrus Heights submarket. Effective rents also show an upward increasing trajectory in the period from 2001 to 2006. Furthermore, effective rents are projected to continue to increase in the period from 2007 to 2010. Concessions reached a peak in 2004 and have since declined. Concessions are further projected to decline in the period from 2007 to 2010.

SUBMARKET RENTAL RATE TRENDS

				Asking Rent					Eff Rent
		Asking		Annual			Effective		Annual			Rent
	Year	Rent		% Change			Rent		% Change			Discount
Historical	2001	$	789		9.4	%	$	782		9.5	%		.90	%
Historical	2002	$	804		1.9	%	$	785		0.4	%		1.1	%
Historical	2003	$	811		0.9	%	$	774		-1.4	%		4.6	%
Historical	2004	$	822		1.4	%	$	776		0.3	%		5.6	%
Historical	2005	$	827		0.6	%	$	783		0.9	%		5.3	%
Current	3Q 2006	$	842		2.3	%	$	797		0.2	%		5.3	%
Estimated	2007	$	868		2.5	%	$	825		3.3	%		5.0	%
Projection	2008	$	895		3.1	%	$	854		3.5	%		4.6	%
Projection	2009	$	926		3.6	%	$	887		3.9	%		4.2	%
Projection	2010	$	963		4.1	%	$	926		4.4	%		3.8	%

Source: REIS MetroTrend Futures 3Q 2006 Citrus Height Submarket, licensed to KTR

Market Segmentation: The following table shows the segmentation by property age. The highest vacancies are seen in the 1970-1979 segment. The lowest vacancies are seen in the 1990-1994 segment. The subject property was constructed in 1976 that places it in the 1970-1979 segment. However, the subject property’s vacancy rate of 2% compares favorably with the submarket median of 4.9%.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 20

SUBMARKET MARKET SEGMENTATION

	% by			Project		Unit		Vacancy			Asking
Year Built	Age			Inventory		Inventory		Rate			Rent
Before 1970		N/A			0		N/A		N/A			N/A
1970-1979		17	%		8		1,131		10.0	%	$	803
1980-1989		74	%		34		4,925		6.2	%	$	846
1990-1994		10	%		4		599		2.6	%	$	894
After 1994		0	%		0		N/A		N/A			N/A
Avg/Total		100	%		46		6,655		6.0	%	$	842

Source: REIS MetroTrend Futures 3Q 2006 Citrus Height Submarket, licensed to KTR

Conclusions: The market is expected to remain quite strong with no increase in inventory, strong demand, low vacancy rates, high asking rents, high effective rents and relatively low levels of concessions. These favorable submarket dynamics should continue to benefit the subject property.

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 21

Rent Comparable #1

Address:	Salishan
	7541 Ramona Lane
	Citrus Heights, CA
Number of Units:	304
Year Built:	1980’s
Description:	Gated garden-style apartments comprised of 2-story residential buildings with wood frame walls covered in stucco surrounded by asphalt parking areas.
Amenities:	Apartment features include washer/dryer in every unit, wood burning fireplaces, balconies or patios and electric kitchen appliances including frost-free freezer and microwave oven. Property features include pool (2), basketball court, fitness center, racquetball court and on-site management.

RENTAL DATA

Unit Type	Size (SF)	Asking Rent/Unit	Effective Rent/Unit	Effective Rent/SF
1BR/1BA	672 to 755	$825 to $885	$783 to $843	$1.12 to $1.17
2BR/1BA	956	$970	$928	$0.97
2BR/2BA	1,002	$1,040	$1,040	$1.04

Occupancy:	88%
Concessions:	$500 off for a 12-month lease on 1BR/1BA and 2BR/1 BA units. Rents are reduced as presented in the chart above.
Comments:	This property has a similar location and a similar condition as in comparison to the subject. However, this property is gated; subject is not.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 22

Rent Comparable #2
Address:	The Grove at Sunrise
	5400 Heritage Tree Lane
	Citrus Heights, CA
Number of Units:	206
Year Built:	2000
Description:	Gated garden-style apartments comprised of two-story residential buildings with wood frame walls covered in stucco surrounded by asphalt parking areas.
Amenities:	Apartment features include washer/dryer in every unit, wood burning fireplaces, balconies or patios and electric kitchen appliances including dishwasher and garbage disposal. Property features include pool (2), spa, storage units, fitness center, clubhouse and on-site management.

RENTAL DATA

Unit Type	Size (SF)	Asking Rent/Unit	Effective Rent/Unit	Effective Rent/SF
1BR/1BA	800	$   965	$   965	$1.21
2BR/2BA	965	$1,120	$1,120	$1.16
3BR/3BA	1,203	$1,300	$1,300	$1.08

Occupancy:	96%
Concessions:	None currently offered by management.
Comments:	This property has a superior location and a superior condition as in comparison to the subject. In addition this property is gated; subject is not.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 23

Rent Comparable #3
Address:	Oak Creek Village
	7747 Greenback Lane
	Citrus Heights, CA
Number of Units:	88
Year Built:	1990
Description:	Gated garden-style apartments comprised of two-story residential buildings with wood frame walls covered in stucco surrounded by asphalt parking areas.
Amenities:	Apartment features include washer/dryer in every unit, wood burning fireplaces, balconies or patios and electric kitchen appliances including dishwasher and microwave oven. Property features include pool, spa, fitness center, clubhouse and on-site management.

RENTAL DATA

Unit Type	Size (SF)	Asking Rent/Unit	Effective Rent/Unit	Effective Rent/SF
1BR/1BA	750	$803	$803	$1.07
2BR/1BA	938	$920	$920	$0.98
2BR/2BA	1,000	$970	$970	$0.97

Occupancy:	99%
Concessions:	None currently offered by management.
Comments:	This property has a similar location and a similar condition as in comparison to the subject. However, this property is gated; subject is not.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 24

Rent Comparable #4
Address:	The Renaissance
	7711 Greenback Lane
	Citrus Heights, CA
Number of Units:	300
Year Built:	1990
Description:	Gated garden-style apartments comprised of two-story residential buildings with wood frame walls covered in stucco surrounded by asphalt parking areas.
Amenities:	Apartment features include wood burning fireplaces, balconies or patios and electric kitchen appliances including dishwasher and garbage disposal. Property features include laundry rooms, pool, tennis court, clubhouse and on-site management.

RENTAL DATA

Unit Type	Size (SF)	Asking Rent/Unit	Effective Rent/Unit	Effective Rent/SF
1BR/1BA	609	$   700	$   700	$1.15
2BR/1BA	760	$   835	$   835	$1.10
2BR/1.5BA	840	$   860	$   860	$1.02
3BR/2BA	1,295	$1,212	$1,212	$0.94

Occupancy:	95%
Concessions:	None currently offered by management.
Comments:	This property has a similar location and a similar condition as in comparison to the subject. However, this property is gated; subject is not. This property does not have full size washer/dryers in each unit; subject does.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 25

Rent Comparable #5
Address:	Autumn Ridge
	6011 Shadow Lane
	Citrus Heights, CA
Number of Units:	410
Year Built:	1990
Description:	Gated garden-style apartments comprised of two-story residential buildings with wood frame walls covered in stucco surrounded by asphalt parking areas.
Amenities:	Apartment features include washer/dryers in each unit, wood burning fireplaces, balconies or patios and electric kitchen appliances including dishwasher. Property features include three pools, tennis courts, saunas, two racquetball courts, fitness center, clubhouse and on-site management.

RENTAL DATA

Unit Type	Size (SF)	Asking Rent/Unit	Effective Rent/Unit	Effective Rent/SF
1BR/1BA	639	$   825	$756	$1.18
2BR/1BA	821	$   930	$853	$1.04
2BR/2BA	920	$1,010	$926	$1.01

Occupancy:	96%
Concessions:	One month off for a 12-month lease. Rents are reduced as presented in the chart above.
Comments:	This property has a similar location in comparison to the subject. However, this property has a superior condition and a superior amenity package in comparison to the subject. In addition, this property is gated; subject is not.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 26

ANALYSIS

The subject property has a good Citrus Heights location along Auburn Blvd., approximately 1.25 miles south of Interstate 80. It is competitive with other properties in terms of location, condition, amenities, and unit size. The tables below illustrate the comparables in comparison to the subject property.

The subject is relatively similar to Salishan and Oak Creek Village in terms of location and physical attributes. The subject is inferior to The Grove at Sunrise and Autumn Ridge in terms of location, age, physical attributes and overall amenities. The subject is most similar to The Renaissance in terms of location, condition and overall amenities. In general, the subject’s rental rates should be aligned below the rents indicated by The Grove at Sunrise and Autumn Ridge, and most similar to rents indicated by The Renaissance.

ONE-BEDROOM FLOOR PLANS

	Unit Type	Unit Size (SF)	Effective Rent/Month	Effective Rent/SF	Comment
Subject	1BR/1BA	802	$840	$1.05	Subject
Salishan	1BR/1BA	672 to 755	$747 to $775	$1.12 to $1.17	Similar
Grove at Sunrise	1BR/1BA	800	$885	$1.21	Superior
Oak Creek Village	1BR/1BA	750	$790	$1.07	Similar
The Renaissance	1BR/1BA	609	$646	$1.15	Similar
Autumn Ridge	1BR/1BA	639	$732	$1.18	Superior

Source: KTR November 2006 Field Survey

As indicated above, the rent (on a per square foot basis) for the subject’s 1-bedroom floor plans are within a tolerable variance of the range of rents illustrated by Salishan, Oak Creek Village and The Renaissance. Since the subject is older than its most similar comparables, it is not surprising that its rent levels for 1-bedroom units should be slightly lower on a per square foot basis. In addition, Salishan, Oak Creek Village and The Renaissance are gated; the subject is not.

TWO-BEDROOM ONE-BATH FLOOR PLANS

	Unit Type	Unit Size (SF)	Effective Rent/Month	Effective Rent/SF	Comment
Subject	2BR/1BA	950	$974	$1.03	Subject
Salishan	2BR/1BA	956	$928	$0.97	Similar
Oak Creek Village	2BR/1BA	938	$920	$0.98	Similar
The Renaissance	2BR/1BA	760	$835	$1.10	Similar
Autumn Ridge	2BR/1BA	821	$853	$1.04	Superior

Source: KTR November 2006 Field Survey

The effective rents for the subject’s 2-bedroom/1-bath units are $1.03 psf. As indicated above, the rent (on a per square foot basis) for the subject’s 2-bedroom/ 1-bath unit floor plans are within a tolerable variance of the range of rents illustrated by Salishan, Oak Creek Village and The Renaissance ($0.97-$1.10 psf).

TWO-BEDROOM ONE AND A HALF, TWO BATH FLOOR PLANS

	Unit Type	Unit Size (SF)	Effective Rent/Month	Effective Rent/SF	Comment
Subject	2BR/1.5BA	1,250	$1,089	$0.87	Subject
Salishan	2BR/2BA	1,002	$1,040	$1.04	Similar
Grove at Sunrise	2BR/2BA	965	$1,120	$1.16	Superior
Oak Creek Village	2BR/2BA	1,000	$   970	$0.97	Similar
The Renaissance	2BR/1.5BA	840	$   860	$1.02	Similar
Autumn Ridge	2BR/2BA	920	$   926	$1.01	Superior

Source: KTR November 2006 Field Survey

The rent (on a per square foot basis) for the subject’s 2-bedroom/1.5 bath floor plans is lower than the rents offered at the three similar comparables (Salishan, Oak Creek Village and The Renaissance). This is not surprising since the units at the subject are larger and older than the units at the comparables. We have used the subject’s lower rent level in our pro-forma analysis.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 27

THREE-BEDROOM FLOOR PLANS

	Unit Type	Unit Size (SF)	Effective Rent/Month	Effective Rent/SF	Comment
Subject	3BR/2BA	1,400	$1,300	$0.93	Subject
Grove at Sunrise	3BR/3BA	1,203	$1,300	$1.08	Superior
The Renaissance	3BR/2BA	1,295	$1,212	$0.94	Similar

Source: KTR November 2006 Field Survey

The effective rents for the subject’s 3-bedroom/2-bath units ($0.93 psf) are closely aligned with the effective rents at its most similar comparable, The Renaissance ($0.94 psf).

Based upon the rents illustrated by the competing properties, and the rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes in our pro-forma analysis. The subject property has been operating at stabilized conditions for several years and is capturing more than its fair share of tenants, especially in comparison to other complexes of similar vintage. The subject has slightly lower average rents than the comparables. In addition, the subject units are slightly larger. Given the high occupancy rate and general market trends, the older age and lack of gates does not appear to be recognized by the market – as the average rent levels are very near other complexes in the neighborhood with superior overall attributes. As such, the subject appears to benefit from the location.

The following table summarizes the economic rent structure estimated for the subject property:

ECONOMIC RENT POTENTIAL-CROSSWOOD PARK APARTMENTS

Name	Unit Type	Mix		Size (SF)		Total Area		Economic Rent/Unit		Economic Rent/SF		Monthly Rent		Annual Rent
Shasta	1BR/1BA		66		802		52,932	$	850	$	1.06	$	56,100	$	673,200
Sequoia	2BR/1BA		12		950		11,400	$	1,038	$	1.09	$	12,456	$	149,472
Sierra	2BR/1.5BA		81		1,250		101,250	$	1,089	$	0.87	$	88,209	$	1,058,508
Yosemite	3BR/2BA		21		1,400		29,400	$	1,360	$	0.97	$	28,560	$	342,720
	Totals/Average		180		1,083		194,982	$	1,037	$	0.97	$	185,325	$	2,223,900

HIGHEST AND BEST USE

HIGHEST AND BEST USE AS IF VACANT

Surrounding Land Uses	Predominately multifamily developments along Crosswoods Pkwy, Crosswoods Circle and San Tomas Drive and single-family residential subdivisions north of Auburn Blvd.
Physically Possible	Being situated on a heavier traveled east-west thoroughfare (Auburn Blvd.), the subject site benefits from visibility to traffic and enjoys good accessibility. Multifamily use would benefit from the site’s exposure to passing traffic.
Legally Permissible	Multifamily use is the intended use of the site.
Financially Feasible	Multifamily development has been occurring throughout the Sacramento area over the past thirty years. Economic conditions appear to be improving and as new employment opportunities present themselves, added demand for rental housing should follow.
Conclusion	New construction with townhouses, duplexes, condominiums or apartment units.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 28

HIGHEST AND BEST USE AS IMPROVED

Current Improvements	180-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the Sacramento area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 29

approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1. Calculate POTENTIAL GROSS INCOME from the dwelling units;

2. Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;

3. Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;

4. Develop the OVERALL CAPITALIZATION RATE;

5. Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $185,325. The annual gross rent potential estimated for the apartment units total $2,223,900.

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease declined from 6.0% in 2003 to 0.0% currently as the market remained tight and the occupancy increased. Based on the previous history at the subject property, we have deducted an average loss to lease expense of 3.5% of the potential gross rent to account for long-term stabilized performance.

Concessions: Rent concessions in the market are used in an attempt to bolster occupancy at area apartments. Concessions usually consist of reduced or free rent over a portion of the lease term. As a percentage of the property’s gross rent potential, concessions amounted to 1.2% in 2003, increasing to 3.9% in 2005 and declined to 3.0% for 2006. REIS predicts that concessions will continue to decline in the Sacramento market. On a stabilized basis, concessions are projected at 2.0% of the estimated gross rent to maintain the projected occupancy. This represents a half-month rent for a 50% turnover a year.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 98% occupied. Properties identified as rental income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 88% to 99%, averaging 94% without the subject (94% with the subject).

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 30

The REIS data indicates an average rate near 6.5% and median rate of 4.9% in the subject’s submarket. However, the largest average vacancy level was reported for properties of similar vintage to the subject. Considering the age and quality of the subject in comparison to the comparables, a vacancy factor of 6.0% seems reasonable. In addition, a 1.5% allowance for stabilized credit loss is included. The combined vacancy and credit loss allowance equates to 7.5% of gross potential rent.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Total utility income in 2003 was $40,166, increasing to $55,857 in 2005. Reimbursement revenue was $67,846 from January 1 through October 31, 2006. Based on the historical utility income receipts, we have estimated Utility Income to be $64,000.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts ranged from 2.3% to 5.0%. Based on historical other income receipts, we have estimated Other Income to be 2.5% of the gross rent potential.

Expenses: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed. The operating budget for the current year has also been considered. Typical operating expenses for garden apartments in the Sacramento area, as reported by IREM have been reviewed and analyzed.

The following table summarizes the 3-year operating history for the subject property and the operating performance for the first 10 months of 2006. We have annualized this on a straight line basis for comparison purposes.

The subject has been operating at stabilized conditions for the past several years with a strong market performance. No major changes in operations are expected at the subject or in the market overall. Although the market is expected to remain strong, it is anticipated that the performance trends will trend toward historical averages over the past several years.

Each category is individually discussed following the table.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 31

SUMMARY OF OPERATING HISTORY AND BUDGET

	180						180						180						180
Units	2003						2004						2005						1/1-10/31/06			2006
Year	Actual			Per Unit			Actual			Per Unit			Actual			Per Unit			Actual			Annualized			Per Unit
INCOME		—			—			—			—			—			—			—			—			—
Gross Potential Income	$	2,066,346		$	11,480		$	2,207,256		$	12,263		$	2,106,684		$	11,704		$	1,777,389		$	2,132,867		$	11,849
Loss to Lease		(86,761	)		(482	)		(132,288	)		(735	)		(4,616	)		(26	)		0			0			0
Concessions		(25,143	)		(140	)		(28,112	)		(156	)		(81,385	)		(452	)		(54,784	)		(65,741	)		(365	)
Vacancy/Credit Loss		(165,358	)		(919	)		(307,360	)		(1,708	)		(166,174	)		(923	)		(110,644	)		(132,773	)		(738	)
Utility Income		40,166			223			46,989			261			55,857			310			67,846			81,415			452
Other Income		105,637			587			71,826			399			48,703			271			54,344			65,213			362
Effective Gross Income	$	1,934,887		$	10,749		$	1,858,311		$	10,324		$	1,959,069		$	10,884		$	1,734,151		$	2,080,981		$	11,561
EXPENSES
Utilities	$	93,169		$	518		$	160,261		$	890		$	143,585		$	798		$	134,099		$	160,919		$	894
Contract Services		110,885			616			100,956			561			79,067			439			76,121			91,345			507
Repairs & Maintenance		46,005			256			38,889			216			39,057			217			23,658			28,390			158
Turnover		117,077			650			87,657			487			63,691			354			52,549			63,059			350
Administration		99,206			551			64,160			356			81,569			453			75,518			90,622			503
Marketing		51,222			285			45,649			254			56,669			315			56,914			68,297			379
Payroll		180,343			1,002			230,557			1,281			239,689			1,332			194,050			232,860			1,294
Management		86,150			479			81,692			454			84,531			470			74,845			89,814			499
Insurance		44,501			247			46,807			260			44,833			249			44,125			52,950			294
Real Estate Taxes	$	128,344		$	713		$	135,132		$	751		$	137,161		$	762		$	118,178		$	141,814		$	788
																							0			0
Total Expenses	$	956,902		$	5,316		$	991,760		$	5,510		$	969,852		$	5,388		$	850,057		$	1,020,068		$	5,667

Utilities:	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject’s historical utilities expense was $518 per unit in 2003, increased in 2004 to $890 per unit and then declined slightly to $798 per unit in 2005. Based on current costs between approximately $800 and $900 per unit, utilities are processed at $850 per unit.
Contract Services:	This category includes those services that are out-sourced such as pool service, extermination, trash removal, courtesy patrol, etc. The subject’s historical contract services expense declined over the past 3 years from $616 per unit to $439 per unit as turnover has decreased. The contract services expense is estimated at $540 per unit based on historical operations.
Repair & Maintenance:	This category includes general repair and maintenance items. The subject’s historical repair and maintenance expense has also declined over the past several years from $256 to $217 per unit. Again, fewer units were vacated and required maintenance and repairs. We have chosen an historical average amount of $230 per unit in our analysis.
Turnover:	This category includes the cleaning, painting and remodeling of units when tenants move out. The subject’s turnover expense has also declined as the market has improved from $650 per unit to $354 per unit. Given historical trends and the expectation of a return to stabilized conditions, a turnover expense is estimated at $500 per unit.
Administrative:	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense has fluctuated between $356 and $551 per unit. Based upon historical trends, an administrative expense of $460 per unit is included.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 32

Marketing:	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense has fluctuated between $254 and $315 per unit. Based upon historical trends, a marketing expense of $320 per unit is projected.
Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject’s historical payroll expense has increased dramatically over the past several years from $1,002 to $1,332 per unit. Payroll expenses are projected at $1,350 per unit based on current operations grown by the inflation factor.
Management:	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.4% of Effective Gross Income. However, management contracts are reported to be somewhat competitive due to the strong market. A market-oriented fee of 3.5% is reasonable.
Insurance:	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance has been relatively stable during the past several years, between $247 and $260 per unit. Insurance expenses are projected at $260 per unit based on current operations grown by the inflation factor.
Real Estate Taxes:	Real estate taxes are processed as discussed within the Real Estate Assessment and Tax Analysis section of this appraisal. The real estate tax projection for 2006 is $171,000, which is the projected, hypothetical sale amount in the sales comparison approach ($15,750,000) at the current tax rate of 1.08532%.
Reserves for Replacements:	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Given the condition of the property, a reserve for replacement allowance of $250 per unit, or $45,000 is estimated for the subject property.
Total Expenses:	Total expenses have been estimated at $1,099,368 or $6,108 per unit inclusive of reserves. Information provided by the Institute of Real Estate Management (IREM) indicates that operating expenses for Sacramento have a median expense level (exclusive of reserves) of $4,187. Since the subject is 30 years old, it is not surprising that it would have a higher expense level than many of its competitors. Industry standard expense data suggests that the total expenses estimated for the subject property are reasonable.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provides a return on owner’s equity.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 33

We have estimated the NOI to be $945,425. The subject’s income and expense pro forma is summarized on the following table.

OPERATING PRO FORMA

INCOME		Amount			Per Unit
Gross Rent Potential	Estimated Market	$	2,223,900		$	12,355
Loss to Lease	3.5% of Gross Rent Potential		($77,837	)		($432	)
Concessions	2.0% of Gross Rent Potential		($44,478	)		($247	)
Vacancy/Credit Loss	7.5% of Gross Rent Potential		(166,793	)		($927	)
Utility Income	Current Average, Rounded		60,000		$	333
Other Income	Current Average, Rounded		50,000		$	278
Effective Gross Income		$	2,044,793		$	11,360
EXPENSES		Amount			Per Unit			Percent of EGI
Utilities	Current Average, Rounded	$	153,000		$	850			7.5	%
Contract Services	Long-term Average, Rounded		97,200			540			4.8	%
Repairs & Maintenance	Long-term Average, Rounded		41,400			230			2.0	%
Turnover	Long-term Average, Rounded		90,000			500			4.4	%
Administration	Long-term Average, Rounded		82,800			460			4.0	%
Marketing	Long-term Average, Rounded		57,600			320			2.8	%
Payroll	Current Grown		243,000			1,350			11.9	%
Management	3.5% of EGI		71,568			398			3.5	%
Insurance	Current Grown		46,800			260			2.3	%
Real Estate Taxes	Based on Sales Approach		171,000			950			8.4	%
Reserves	$250 per Unit		45,000			250			2.2	%
Total Expenses		$	1,099,368		$	6,108			53.8	%
NOI		$	945,425		$	5,252			46.2	%

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer:	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors. In addition, local buyers may be interested in the condominium conversion possibilities due to the location, size and housing market.
Market Extraction:	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 34

SUMMARY OF MARKET DERIVED OVERALL RATES

	Sale 1	Sale 2	Sale 3	Sale 4	Sale 5
Name	Oak Hollow	Spring Creek	Windward Village	University Village	Village at Carmichael
Sale Date	Nov-06	Aug-06	Jul-06	Jan-06	Dec-05
Cap Rate (OAR)	5.4%	6.1%	7.0%	6.6%	5.6%

	The sales exhibit overall rates that fall within a range from 5.4% to 7.0% and produce an average of 6.1%. The sales represent recent transactions of 1970’s and mid-1980’s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are in Sacramento area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data and recent trends, a capitalization rate of approximately 6.0% is suggested.
Survey of Investors:	Real Capital Analytics surveys apartment sales throughout the United States. In their Apartment Capital Trends Monthly Report for November 2006, Real Capital Analytics reports that for the 12 months ending in October 2006, the average cap rate for apartment sales in the Sacramento area was 5.8%. Furthermore, Real Capital Analytics reports that the median cap rate for apartment sales in the Sacramento area for the 12 months ending October 2006 was 5.82%. Since the subject property is a Class “B” complex, one would expect its cap rate to be slightly higher than the market averages.
OAR Conclusion:	The sales exhibit overall rates that range from 5.4% to 7.0% and produce an average of 6.1%. Published investor surveys suggest that an appropriate cap rate for the subject property is above 5.82%. Based on the indicators exhibited by the sales data and confirmed through review of investor surveys, an appropriate cap rate for the subject property is concluded to be 6.0%.

Valuation: Capitalizing the estimated Net Operating Income results in a value conclusion of $15,500,000, rounded ($945,425 NOI ¸ 6.0% OAR = $15,757,083).

Final Value: $15,750,000

SALES COMPARISON APPROACH

The Sales Comparison Approach to value is the process of comparing recent sales of competitive properties. The estimated value derived via this approach represents the probable price at which the subject property would be sold by a willing seller to a willing buyer as of the date of value.

To estimate the property value by the Sales Comparison Approach, five multifamily apartment building sales, which are summarized in the following table, have been examined and analyzed. All of the sales are garden style apartments with similar physical characteristics within the Sacramento area apartment market. The appraisal indicators exhibited by the sales data outlined in the following chart are utilized for purposes of estimating a value for the subject via the Sale Comparison Approach.

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 35

The price per apartment unit has been relied upon as the unit of comparison in this approach. The comparative process involves judgment as to the similarity between the subject property and the comparable sale property with regard to a variety of factors affecting value such as location, age and condition of the structure, market conditions, rent levels, property rights conveyed, financing terms, conditions of sale, operational efficiencies and other factors.

ANALYSIS OF SALES: This approach relies on an active market. Sufficient data from the Sacramento area exists to formulate a value via the Sales Comparison Approach. Below are 5 sale comparables of similar vintage garden style apartments with similar characteristics to the subject property.

SUMMARY OF COMPARABLE BUILDING SALES

Sale No.	1	2	3	4	5
Name	Oak Hollow	Spring Creek Apts.	Windward Village	University Village	Village at Carmichael
Location	4407 Oakhollow Drive	7761 Greenback Lane	3130 Occidental	7767 La Riviera	8732 Fair Oaks Blvd.
	Sacramento, CA	Citrus Heights, CA	Dr. Sacramento, CA	Dr. Sacramento, CA	Carmichael, CA
Sales Price	$36,100,000	$22,800,000	$11,800,000	$21,630,312	$11,446,000
Sale Date	03-Nov-2006	1-Aug-2006	19-July-2006	17-Jan-2006	29-Dec-2005
Year Built	1985	1985	1974	1979	1972
No. of Units	434	196	168	250	148
Net Rentable Area (SF)	374,150	200,460	126,000	185,642	109,525
Occupancy	92%	95%	94%	95%	92.5%
Price/SF	$96.49	$113.74	$93.65	$116.52	$104.51
Price/Unit	$83,180	$116,327	$70,238	$86,521	$77,337
Net Income	$1,961,933	$1,395,000	$836,126	$1,430,779	$636,752
NOI/SF	$5.24	$6.96	$6.64	$7.71	$5.81
NOI/Unit	$4,521	$7,117	$4,977	$5,723	$4,302
Cap Rate (OAR)	5.4%	6.1%	7.0%	6.6%	5.6%
EGIM	9.93	10.26	7.80	8.41	8.87
Expense Ratio (OER)	42%	35%	42%	42%	47%

The sales indicate per unit prices that range from $70,238 to $116,327. All of the comparables represent sales of apartments that are of similar construction componentry as the subject. All of the sales are similar as to the subject property in terms of location and physical condition. However, Comps. 1 and 2 are newer than the subject property. Situated throughout the eastern area of the Sacramento metro area, minor differences exist as to the specific location of each comparable and subject property.

The primary difference between the comparables and the subject are location, age and average unit size. The most value influencing difference between the subject and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparables, we have analyzed the difference between the net operating income (NOI) per unit of the comparables relative to the NOI of the subject property. In this analysis we have adjusted the sale price of the comparables based on the percentage difference in net income. As discussed in the Income Approach section of the report, the NOI estimated for the subject property equates to $5,315 per unit. The adjustments applied to the comparable sales are depicted below.

PRICE PER UNIT ANALYSIS

Sale No.	Price/Unit	Subject NOI/Unit	Comparable NOI/Unit	Adjustment Factor	Adjusted Price/Unit
1	$   83,180	$5,252	$4,521	1.16	$96,636
2	$ 116,327	$5,252	$7,117	0.74	$85,850
3	$   70,238	$5,252	$4,977	1.06	$74,124
4	$   86,521	$5,252	$5,723	0.92	$79,406
5	$   77,337	$5,252	$4,302	1.22	$94,422

* Adjustment Factor = (Subject NOI per Unit / Comparable NOI per Unit)

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 36

The adjusted range of per unit prices is $74,124 to $96,636. The mean adjusted unit price is $86,087. As no one sale requires a significant degree of adjustment, most emphasis is placed on the mean in concluding to a value of $87,100 per unit for the subject property. Utilizing this per unit value estimate, the total value of the subject property is estimated at $15,498,000 ($86,100 X 180 units). This is rounded to $15,500,000. Note that the NOI includes taxes based on a total property value of $15,750,000.

EGIM ANALYSIS: The sales illustrate EGIMs that range from 7.80 to 10.26. Important in selecting an appropriate EGIM is the review of corresponding operating expenses. There is an inverse relationship that generally holds among EGIMs and operating expenses. Properties that have higher expense ratios typically sell for relatively less and therefore produce a lower EGIM. The operating expense ratios for the sales range from 35% to 47% (with reserves).

In selecting an appropriate EGIM, consideration must be given to the operating expense ratio estimated for the subject. Based on the income and expenses estimated for the subject property in the income capitalization approach, the subject’s operating expense ratio is calculated at 53.8% (with reserves). The subject’s expense ratio is higher than the comparable data. An EGIM for the subject at 7.8 near the bottom of the range is reasonable considering the subject’s higher expense level.

Based on the effective gross income estimated for the subject property in the Income Capitalization Approach, an indication of $15,900,000 (rounded) is concluded using the EGIM.

$2,044,793 x 7.8    =    $15,949,385 or $16,000,000, rounded

CONCLUSION: The noted value indicator utilizing the sales price per unit method is $15,500,000 and the EGIM method is $16,000,000. The price per unit method may understate the value due to the way the real property taxes are estimated using the higher hypothetical sale price. Conversely, the EGIM method may overstate the value due to the higher expense ratio at the subject. A value between the two is reasonable. As such, the Market Value of the subject property’s Fee Simple Interest via the Sales Comparison Approach is estimated at:

Value via the Sales Comparison Approach $15,750,000

RECONCILIATION

Cost Approach	Not Applicable
Income Capitalization Approach	$15,750,000
Sales Comparison Approach	$15,750,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The indicated value is consistent with the projected tax amount, which has the tax expense based on a hypothetical sale at $15,750,000 based on the sales approach.

The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Page 37

through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the result of the Income Capitalization Approach is emphasized.

FINAL ESTIMATE OF VALUE    $15,750,000

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

ADDENDA

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

SUBJECT PHOTOGRAPHS

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

VIEW OF TYPICAL BUILDING

SIDE VIEW OF TYPICAL BUILDING

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

BUILDING FRONTAGE ON AUBURN BLVD.

VIEW OF BUILDING WITH COVERED PARKING

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

INTERIOR VIEW OF CLUBHOUSE

VIEW OF BASKETBALL COURT

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

VIEW OF SWIMMING POOL

VIEW OF TYPICAL PARKING AREA

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

VIEW OF TYPICAL KITCHEN

VIEW OF LANDSCAPED GROUNDS

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

VIEW OF TYPICAL BATHROOM

VIEW OF TYPICAL LIVING AREA

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE #1

COMPARABLE #2

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE #3

COMPARABLE #4

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

MPARABLE #5

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE SALE PHOTOGRAPHS

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

IMPROVED SALE #1

IMPROVED SALE #2

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

IMPROVED SALE #3

IMPROVED SALE #4

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

IMPROVED SALE #5

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

REGIONAL LOCATION MAP

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

NEIGHBORHOOD MAP

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE RENTALS MAP

Crosswood Park Apartments
Citrus Heights, California December 8 2006
Addenda

COMPARABLE SALES MAP

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Addenda

QUALIFICATIONS

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Addenda

STEVEN J. GOLDBERG, MAI, CCIM
SENIOR MANAGING DIRECTOR — VICE PRESIDENT

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Valuation & Consulting Services, LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Addenda

DEAN HOBART
SENIOR MANAGING DIRECTOR — VICE PRESIDENT

DEAN HOBART is manager of Chicago office for KTR Valuation & Consulting Services LLC, at 224 S. Michigan Avenue, Chicago, Illinois 60604. His direct telephone number is 312-386-3194. Mr. Hobart has over 12 years of nationwide experience in residential and commercial appraisal, analysis and evaluation. He has extensive experience in many markets in California and in the Midwest and Southeast regions of the country. Prior to relocating to the Chicago office in 2001, Mr. Hobart was a senior appraiser at the New York City office of KTR, where he performed appraisals on a wide variety of commercial properties throughout the New York City metropolitan region, New England, Atlantic Seaboard and Southern sections of the country. During his appraisal career, Mr. Hobart has been involved with numerous projects with construction, zoning, development, environmental, or soil stabilization issues as a major component of the valuation assignment, including Phase I Environmental Site Assessments and Property Physical Condition Surveys.

As an appraiser, Mr. Hobart also worked at the New York City office of Grubb & Ellis Company (prior to and after it acquired Landauer Associates) where he performed appraisals for litigation support, right-of-way, property tax appeals, partnership interests and arbitration. Mr. Hobart has also been employed as an independent fee appraiser in Los Angeles, California where he performed apartment, special use, and residential appraisals for lending, income tax, property tax, insurance adjustment and feasibility purposes. He was appointed by the Los Angeles County Superior Court for 2 terms as a Real Estate Mediator for the Alternate Dispute Resolution (ADR) Program and was licensed at the time as a California Certified Residential Real Estate Appraiser and was a member of the Los Angeles County Board of Realtors and a licensed Real Estate Broker.

As an architect from 1981 to 1994, Mr. Hobart performed work on a wide variety of office buildings, acute care hospitals, banks, high-end residential projects, land use planning and construction management. He received his Bachelor of Architecture with a concentration in Planning and Historic Preservation at the University of Texas at Austin and also attended the Graduate School of Business with coursework in Real Estate and Finance. Mr. Hobart is an AIA Member in the American Institute of Architects and is a General Associate Member of the Appraisal Institute as an MAI Candidate.

Current License Listing
California Licensed Architect #C21442	Expires April 30, 2007
Georgia Certified General Real Property Appraiser #249837	Expires April 30, 2007
Illinois Real Estate Appraiser #172.0001999	Expires February 2, 2007
Michigan Certified General Appraiser #1201068783	Expires July, 31, 2008
New York Real Estate General Appraiser #46000039228	Expires December 5, 2008
Ohio Certified General Real Estate Appraiser #2006000890	Expires March 9, 2007
Pennsylvania Certified General Appraiser #GA003525	Expires June 30, 2007
South Carolina Certified General Appraiser #CG5631	Expires June 30, 2007
Virginia Certified General Real Estate Appraiser #4001010796	Expires February 29, 2008

Court Appointments and Testimony
Franklin County Ohio Real Property Tax Court – Expert Witness
Los Angeles County California Real Property Tax Court – Expert Witness
Los Angeles County California Superior Court – Court Appointed Real Estate Mediator
Montgomery County Ohio Real Property Tax Court – Expert Witness

Crosswood Park Apartments	December 8 2006
Citrus Heights, California	Addenda

JOHN GROCHOWIAK
APPRAISER

JOHN GROCHOWIAK is an Appraiser in the Chicago Office of KTR Valuation & Consulting Services, LLC (KTR).

Mr. Grochowiak has over 16 years of experience in the valuation and financial analysis of securitized obligations, including credit card receivables, home equity loans, single- and multi-family mortgages and collateralized commercial mortgage deals (CMBS).

Prior to joining the Chicago office in 2005, Mr. Grochowiak had been employed at The Industrial Bank of Japan (now The Mizuho Group), New York City, where he was a Vice President in charge of sales and marketing for the Asset Management and Trust Division. Mr. Grochowiak had previously worked as a Portfolio Manager at the Capital Markets Division of JP Morgan Chase in New York City. Mr. Grochowiak was Vice President for Bank of America’s Institutional Trust Division in Los Angeles, where he managed a team of Trust Officers who specialized in asset-backed transactions. He was responsible for the due diligence valuation of the Institutional Trust Division’s strategic acquisition targets. He also conducted nationwide compliance training sessions in accordance with Federal Reserve Guidelines. He had previously worked for the US Trust Company (now the Charles Schwab Company) in Los Angeles, where he was an Assistant Vice President in the Asset Management Division responsible for investment trust analysis and risk management. Mr. Grochowiak began his career as a municipal trust manager at Bank of America (formerly Security Pacific) in San Francisco.

Mr. Grochowiak received his Bachelor of Arts Degree in Economics from The University of Chicago. He has completed the State of Illinois qualifying education for the Illinois Associate Real Estate Appraiser License.

Mr. Grochowiak is an Associate Member in the Chicago Chapter of the Appraisal Institute and is an MAI Candidate. He was a Level 2 Candidate in the CFA Program as sponsored by AIMR (Association for Investment Management and Research) and is a Certified Corporate Trust Specialist.

EX-99.(C)(19)

APPRAISAL
OF
MOUNTAIN VIEW APARTMENTS
650 EAST BONITA AVENUE
SAN DIMAS, CALIFORNIA

Ms. Martha Long	December 8, 2006
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, SC 29601

Re:	Mountain View Apartments
	650 East Bonita Avenue
	San Dimas, California

Dear Ms. Long:

At your request, KTR Valuation & Consulting Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of November 17, 2006. The date of value corresponds to the date the subject property was most recently inspected by the appraiser.

The subject property consists of an approximate 8.16± acre tract of land improved with a 168-unit garden-style apartment complex known as the Mountain View Apartments. Construction of the improvements was reportedly completed in 1978. The structural improvements were observed to be in average physical condition and consist of two-story wood frame construction with stucco and wood trim exterior walls and flat roofs with built-up covers. Amenities common to all units include standard kitchen appliances, cable TV pre-wire, patio/balcony, ceiling fans and mini-blinds. Community amenities include on-site management/leasing office, fitness center, sauna, swimming pool, spa, covered parking, playground and laundry facility. The Mountain View Apartments contain 167,366 rentable square feet, which suggests an average unit size of 996 square feet.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

5477 Glen Lakes Drive, Suite 202, Dallas, TX 75231

t e l 214.363.3373 • f a x 214.369.4388

w w w . f i r s t a m . c o m

Ms. Maltha Long
VMS National Properties JV
December 8, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 17, 2006. is:

THIRTY MILLION EIGHT HUNDRED THOUSAND DOLLARS
($30,800,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Mountain View Apartments	December 8, 2006
San Dimas. California	Page i

CERTIFICATE OF VALUE

We, William L. Corbin. MAI and Steven J. Goldberg, MAI, certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, are our personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Charles K. Russell provided significant professional help in this appraisal assignment.

Charles Russell made a personal a personal inspection of the property that is the subject of this appraisal. Neither William L. Corbin nor Steven J. Goldberg inspected the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, William L. Corbin, MAI and Steven J. Goldberg. MAI, have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

As of the date of this appraisal, William L. Corbin MAI is currently certified with the State of California Office of Real Estate Appraisers and is licensed as a Certified General Real Estate Appraiser (AG025737) until February 27, 2007.

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director

Mountain View Apartments	December 8, 2006
San Dimas, California	Page ii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page iii

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page iv

SUBJECT PROPERTY PHOTOGRAPH

Mountain View Apartments	December 8, 2006
San Dimas, California	Page v

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certificate of Value		i
Basic Assumptions and Limiting Conditions	ii
Subject Photograph	iv
Table of Contents		v
Executive Summary		1
Introduction and Premises of the Appraisal		2
Regional Overview		4
Neighborhood Overview		10
Site Analysis		12
Real Estate Taxes		13
Zoning		14
Description of Improvements		14
Apartment Market Overview		17
Economic Rent Analysis		21
Highest and Best Use		27
Valuation Procedure		28
Income Capitalization Approach		29
Sales Comparison Approach		34
Reconciliation and Final Value Conclusion		38

ADDENDA

Subject Photographs
Comparable Rental Photographs
Comparable Sales
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map
Qualifications

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 1

EXECUTIVE SUMMARY

Property:	Mountain View Apartments
Location:	650 East Bonita Avenue, San Dimas, California
Assessors Parcel ID No:	5722-019-017 – Los Angeles County Assessor
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 17, 2006
Date of Report:	December 8, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of an approximate 8.16± acre tract of land improved with a 168-unit garden-style apartment complex known as the Mountain View Apartments. Construction of the improvements was reportedly completed in 1978. The Mountain View Apartments contain 167,366 rentable square feet, which suggests an average unit size of 996 square feet.
Location:	The subject property is located in the central portion of the City of San Dimas, at the southwest corner of East Bonita Avenue and South San Dimas Canyon Road.
Zoning:	The subject site is zoned MF-16 (Multiple-Family Zone) by the City of San Dimas. The intended use of land in this zoning district is primarily multifamily use.
Flood Zone:	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone C, an area outside any special flood hazard areas as defined by FEMA.
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months
Valuation Assumptions:

Average Market Rent (per Unit)	$	1,598
Market Vacancy/Credit Loss		7.5	%
Operating Expense Ratio		43	%
Net Operating Income	$	1,691,314
Overall Capitalization Rate		5.5	%

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 2

Final Estimate of Market Value, by Approach
Cost Approach:		N/A
Sales Comparison Approach:	$	31,000,000
Income Approach:	$	30,800,000
Final Estimate of Market Value:	$	30,800,000

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 17, 2006. It is for the internal use of AIMCO to facilitate asset evaluation and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:
	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)”.
Marketing Period	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006, indicates that apartment properties in the national market have an average marketing time of 5.58 months, generally similar to the average of 5.92 months reported one year ago. This estimate seems

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 3

	reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History	Property tax records indicate that VMS National Properties ET AL is the current owner of record. The current owner acquired title to the property on November 7, 1984. No details pertaining the conveyance were provided to the appraisers. No conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.
Most Likely Buyer	National and regional investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1.	buyer and seller are typically motivated;
2.	both parties are well-informed or well advised, and acting in what they consider their best interests;
3.	a reasonable time is allowed for exposure in the open market;
4.	payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5.	the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 4

REGIONAL OVERVIEW

Introduction	Real estate values reflect the influence of four primary forces that motivate human activity; social trends, economic conditions, governmental policies and environmental factors. The purpose of the regional overview is to describe and analyze the area within which the interactions of the four major forces influence properties similar to the subject. This section will further analyze past trends for insight into possible future trends affecting the value of real estate.
Overview	The subject property is located in the Los Angeles MSA, within the city of San Dimas and approximately 45 miles northeast of the Los Angeles Central Business District. Los Angeles County, in which the subject is located, was the first to develop and has always been the largest of the five counties comprising the Los Angeles Metropolitan Area (LAMA). Los Angeles County’s population is 3.5 times the size of Orange County’s, the second largest county in the LAMA. It is 1.5 times the size of the other four counties in the region combined.
Population	The urbanized central and southern portions of Los Angeles County are nearly fully developed. Only the northern portion of the county has significant developable land remaining for future growth. However, these areas are separated from the urbanized areas by natural barriers. Most of the future growth in Orange County is expected to occur in the southeastern part of the county where there are large undeveloped tracts of land. Growth in older parts of both counties will be primarily in-fill of vacant parcels and redevelopment of older properties.
	During the period between 1970 and 1980, the county’s population grew at an average annual compound rate of 0.60%. This was slow compared to Orange County’s rate of 3.13% during the same decade. This was due to Los Angeles County’s already large size and Orange County’s appeal as an alternative residential area. During the 1980s the pace accelerated in Los Angeles County to 1.68% annual compound growth, while Orange County’s slowed to 2.23%. Both counties’ populations increased at slower rates of 1.13% and 1.61% annually between 1990 and 2000. However, this slowed growth still equated to an average annual population increase of 105,180 persons per year in Los Angeles County and 41,784 persons per year in Orange County.
	The slowing of the population growth rates has resulted from the growing scarcity of available land for new development in both counties. Population trends are summarized in the following table showing historical population growth. While the figures in the table are tabulated by the U.S. Census, according to the California Department of Finance the January 2006 populations for Los Angeles and Orange counties were 10,245,572 and 3,072,336 respectively. The figures show 2006 population increases of 0.78% and 0.83%, respectively, for the two

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 5

counties, which have decreased since 2002, although slightly higher than 2005 figures.

LOS ANGELES AND ORANGE COUNTIES POPULATION

	Los Angeles County		Orange County
		Ann.		Ann.
		Rate #		Cpnd.
Year	Population	Chg.	Population	Rate
U.S. Census – (As of April 1)
1970	7,041,980	—	1,420,386	—
1980	7,477,400	0.60%	1,932,921	3.13%
1990	8,832,500	1.68%	2,410,556	2.23%
2000	9,884,300	1.13%	2,828,400	1.61%
California Department of Finance – (As of January 1)
1997	9,147,100		2,672,800
1998	9,225,800	0.86%	2,724,500	1.93%
1999	9,330,100	1.13%	2,776,100	1.89%
2000	9,487,400	1.69%	2,829,800	1.93%
2001	9,646,300	1.67%	2,880,600	1.80%
2002	9,817,400	1.77%	2,930,500	1.73%
2003	9,979,600	1.65%	2,978,800	1.65%
2004	10,103,000	1.24%	3,017,300	1.29%
2005	10,166,417	0.63%	3,047,054	0.99%
2006	10,245,572	0.78%	3,072,336	0.83%

Employment and Industry	The sheer size of the five-county Los Angeles Metropolitan Area economy is its most important asset. As a country, the area would reportedly be ranked 11th in the world in terms of productivity and accounts for over 5% of jobs and spending nationally. Job growth from 1994 through 1999 outpaced the national average and in 2001 the region had approximately 1.4 million more jobs than in 1993 when the region’s employment was at its lowest point in recession of the early 1990’s. The Los Angeles region’s recovery has been led by motion picture production, foreign trade, and gains in older manufacturing sectors such as apparel, textiles, furniture, and toys.
	At the beginning of 2001, the U.S. and California economies were generally viewed as having slipped into recession. The mild economic downturn was compounded by the 9-11-01 event. However, in its 2002-2003 Economic Forecast & Industry Outlook for the Los Angeles Five - County Area, the Los Angeles Economic Development Council (LAEDC) forecasted the five-county region to be minimally impacted by the recession in 2002, with recovery for the region, the state and the nation beginning late 2002.
	Economic reality has caused economists to revise their projections regarding the characteristics of the recovery and its timing. During 2002 and 2003, the overall economy, nationally and in California, experienced a “jobless recovery”, a recovery fueled by low interest rates and consumer spending, with increasing corporate profits but no or minimal job growth.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 6

In its mid-year 2004-2005 Economic Forecast, the LAEDC projected total Los Angeles County non-farm employment to grow by just 1.0% in 2004, but projected this would increase to 1.6% growth in 2005. In its mid-year 2005-2006 Economic Forecast, the LAEDC projected total Los Angeles non-farm employment to again grow by just 1.0% in 2004 or by 40,500 jobs in Los Angeles County in 2005, and projected this would increase to 1.1% growth in 2006. It also forecasted all five counties in the Southern California region to have positive job growth in 2005 and 2006 as follows: Los Angeles – 1.0% and 1.1%, San Bernardino- Riverside – 3.0% and 3.0%, Orange – 1.9% and 1.8%, and San Diego – 1.7% and 1.8%. Year-to-date October 2005, Los Angeles County has gained 14,400 job growth.

LAEDC reports “there is much hand wringing about the weak non-farm employment performance of Los Angeles County. For example, the 2005 estimated average is 4,033,800 jobs, compared with the 2001 average of 4,135,700 jobs, which would be fifteen years of no job growth. However, total civilian employment should average 4,670,800 jobs in 2005, compared with the 2001 average of 4,259,700 jobs. The 2005 average is a new high for the county in this indicator. Many analysts feel that the civilian employment survey is not as accurate as the non-farm establishment survey due to the small sample size, but more people are working as independent contractors or in other ways that do not get captured by the establishment survey. A good case can be made that Los Angeles County is on the leading edge of this trend. Examples include the motion picture/TV production industry, software development, and the independent truck drivers who work at the ports. Anecdotal information also indicates that manufacturing and small contractors are using independent contractors.”

The agency notes in its 2006-2007 Economic Forecast and Industry Outlook for California and Southern California that in Los Angles County, positive economic forces for the county include:

• Continued modest job growth in Aerospace.

• Strong growth continuing for International Trade with an increase of 12% in two-way trade passing through the local customs district.

• Tourism will continue running at high levels.

• Professional and business services will see continued strong demand.

• The technology sector should hold at high levels.

• Major project construction will support the construction industry.

Negative economic forces for the county will include:

• The movie industry will be coping with run-away production, challenges to the existing business models (particularly related to cost control), as well as possible labor strife over the next few years.

• A lack of quality industrial space available for industrial growth with the countywide vacancy rate in the range of 2%.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 7

• The continued lack of affordable housing.

• A modest slowdown in new home building.

• Not much improvement in the state’s business environment, which has already cost the county jobs, most notably with the departure of Nissan North America headquarters out of state.

The agency is projecting a 0.9% net gain in jobs in 2006, with the county’s unemployment rate continuing at a low rate in the range of 5.3%. By comparison, the 2006 rate of 4.5% was the lowest for the county since 1988.

LOS ANGELES COUNTY HISTORICAL JOB GROWTH

Category	1997			1998			1999			2000			2001			2002			2003			2004			2005			Aug-06
Mining		3,600			36,000			3,500			3,600			3,800			3,800			3,800			4,000			4,100			3,900
Construction		113,700			126,600			131,300			137,300			138,000			134,800			136,900			141,000			149,100			155,800
Manufacturing		641,100			636,000			620,000			604,600			550,400			522,400			488,800			478,200			473,700			465,800
Trade/Trans/Util		779,400			787,800			805,300			817,300			806,000			809,600			798,600			802,500			808,000			798,100
Information		220,400			223,000			239,100			249,000			217,700			197,900			206,600			203,200			216,900			211,800
Financial Activities		221,100			224,000			223,800			219,900			231,800			237,100			242,400			245,000			246,700			247,700
Professional & Business		578,500			592,500			608,300			610,500			583,600			575,700			560,400			570,500			573,600			582,600
Educational & Health		384,600			397,600			410,100			423,000			447,000			463,000			472,400			476,600			483,700			468,000
Leisure & Hospitality		329,500			335,100			339,800			350,000			348,700			356,900			367,700			372,400			383,500			391,500
Other Services		131,700			136,100			137,200			140,600			143,400			146,600			145,000			144,900			146,300			148,900
Government		542,000			556,600			580,800			591,100			610,300			612,600			595,500			584,800			587,000			563,200
Total		3,945,600			4,051,300			4,099,200			4,146,900			4,080,700			4,060,400			4,018,100			4,023,100			4,072,600			4,037,300
Change		—			105,700			47,900			47,700			-66,200			-20,300			-42,300			5,000			49,500			-35,300
L.A. Unemployment		6.0	%		6.0	%		5.3	%		4.5	%		6.3	%		6.4	%		6.3	%		6.0	%		5.1	%		5.1	%
California		5.8	%		5.5	%		4.7	%		4.4	%		6.2	%		6.7	%		6.3	%		5.7	%		5.1	%		4.9	%
U.S.		4.7	%		4.4	%		4.0	%		3.9	%		5.7	%		6.0	%		5.7	%		5.4	%		4.9	%		4.6	%

Source: State of California Employment Development Department

The following table summarized the major employers in Los Angeles County, sorted in alphabetical order by company name.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 8

MAJOR EMPLOYERS IN LOS ANGELES COUNTY

Employer Name	Location	Industry
Aerospace Corp.	El Segundo	Commercial Physical Research
American Honda Motor Con Inc.	Torrance	Automobile & Truck Broker
American Honda Motorcycle DIV	Torrance	Marketing Programs & Services
Amtrak	Los Angeles	Governmnet
California Institute of Technology	Pasadena	University
California State University	Long Beach	Recylcing Centers
Edison International	Rosemead	Utilities-Holding Company
Fox Films	Los Angeles	Television Station
Jet Propulsion Lab	Pasadena	Marketing Programs & Services
Kaiser Foundation Hospital	Los Angeles	Hospital
Kaiser Permanente	Los Angeles	Physicians & Surgeons
King Drew Medical Ctr.	Los Angeles	Hospital
Little CO of Mary Hospital	Torrance	Hospital
Lockheed Martin Aeronautics Co	Burbank	Aircraft Manufacturer
Long Beach Memorial Hospital	Long Beach	Hospital
Los Angeles County Medical Center	Los Angeles	Hospital
Memorial Rehabilitation Hospital	Long Beach	Rehabilitation Services
Six Flags	Valencia	Amusement Park
UCLA	Los Angeles	University
USC	Los Angeles	University
VA Greater Los Angeles	Los Angeles	Hospital
Walt Disney CO	Burbank	Motion Picture Producer & Studio
Westcoast	Carson	Marketing Programs & Services
Xerox Corp	El Segundo	Office Machiens NEC

Transportation	Transportation throughout Southern California is largely dependent on the private automobile, which is supplemented by local and county bus and rail services. One of the assets for Southern California, which has spurred its tremendous growth, has been its freeway system. The Southern California freeway system consists of 650 miles in six to twelve lanes of modern concrete roadways. The region is also well served with a modern system of surface streets.
	The LAMA is a classic example of the multiple nuclei theory of urbanization. Its formation into an urban conglomerate of multiple centers was facilitated by the proliferation of automobiles and the construction of numerous highways and interstate freeways. These are complemented by international and regional airports, the port facilities and rail lines conveniently situated throughout the region.
	While Los Angeles is served by all modes of transportation, the dominance of the highway system is evident. The basin is crisscrossed by interstate freeways connecting the area to all others areas of Southern California and the southwestern United States. Construction is on-going in the improvement of the system, with the expansion of the Orange County stretch of north-south Interstate 5 the current focus. In addition to the freeways, there is a large network of highways and thoroughfares providing surface road transport throughout the entire basin. The LAMA has become the transportation and distribution hub for the entire southwest U.S.
	Aside from the growing light-rail system, passenger and freight rail links are found throughout the Los Angeles-Orange County-San Diego area. Connections provide service to other parts of the continental U.S. and Canada. The proximity of several international and regional airports and

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 9

	deep-water ports in the LAMA has been an important factor in the growth of international trade. Los Angeles International Airport is one of the busiest commercial airports in the United States. Twenty-three miles south of Downtown, the Los Angeles/Long Beach harbors provide sea transportation and cargo facilities, and combined represents the United State’s busiest port. Container volume continues to grow at these facilities. The proposed Alameda Corridor project, expected to be developed within a ten-year time span, will greatly improve access between the Los Angeles/Long Beach harbors and the railyards southeast of Downtown L.A. through a cooperative use of existing rail right-of-ways.
	Nonetheless, population growth within the region continues to burden the existing transportation infrastructure. The LAEDC reports that California’s budget problems will impact local governments, as will as transportation projects in the near term and as the region’s population continues to grow, the “transportation deficit” will worsen.
Foreign Trade	The combined Ports of Los Angeles and Long Beach represent the largest man-made facilities on the West Coast providing break-bulk, dry- bulk, general containerized, and liquid cargo shipping. These, combined with the Los Angeles and Ontario international airports and the John Wayne airport, handle one of the highest levels of freight volume in the world. In 1993 the LAMA region passed New York in trade goods volume as the largest in the nation. Together, the ports account for about 25% of all U.S. water-based trade. The following table shows historical port volume by physical cargo units.

HISTORICAL PORT CARGO VOLUME
(IN TEUs – equivalent to one 20-foot cargo container)

	Port of Los	Port of Long	Total
Year	Angeles	Beach	Containers	% Chg.
1995	2,500,000	2,843,502	5,343,502
1996	2,600,000	3,067,334	5,667,334	6.1%
1997	2,900,000	3,504,603	6,404,603	13.0%
1998	3,300,000	4,097,689	7,397,689	15.5%
1999	3,828,850	4,408,480	8,237,330	11.4%
2000	4,879,428	4,600,787	9,480,215	15.1%
2001	5,183,519	4,462,959	9,646,478	1.8%
2002	6,105,863	4,524,038	10,629,901	10.2%
2003	7,178,940	4,658,124	11,837,064	11.4%
2004	7,385,227	5,703,832	13,089,059	10.6%
2005	7,484,624	6,774,690	14,259,314	8.9%

The total dollar volume of trade through the Los Angeles Customs District has increased in every year since 1979. Los Angeles passed New York to retake the lead in foreign trade volume for the nation. The top five trade centers in 2003 were Los Angeles ($214.3 billion), New York ($209.8 billion), Detroit ($179.3 billion), Laredo (114.3 billion), and New Orleans ($87.7 billion). Excluding the peak recessionary year of 2001, Los Angeles county ports have had double-digit trade increases

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 10

	in every year from 1997 forward, with the exception of 2005, which took a dip to 8.9%.
	The growth in foreign trade supports job gains in professional services (like construction, design, and engineering), financial services, wholesale trade, manufacturing, and tourism and entertainment, according the Center for the Continuing Study of the California Economy.
Conclusion	The Los Angeles Metropolitan Area’s diversity and strength have acted as a magnet in attracting in-migration which, coupled with a steady natural increase, have created the second largest population center in the country. A possible impediment to future growth in the developed areas of the region is the capacity of the infrastructure. In many areas it has stressed by sustained population and economic growth. Some improvements to these systems have now commenced planning or construction.
	Notwithstanding the above, most economic forecasts predict strong population and economic growth for the region over the next decade. The economic base of the region has changed and diversified since the onset of the last recession. Declining industries have been replaced with growth industries. This change has been facilitated by the strong entrepreneurial approach to problem solving which is the character of the region.

NEIGHBORHOOD OVERVIEW

	The Appraisal of Real Estate defines a neighborhood as “a group of complimentary land uses”. A neighborhood should be distinguished from a district, which is defined as “a type of neighborhood that is characterized by homogenous land use”. A neighborhood will contain land uses complimentary to one another. For example, predominantly residential neighborhoods typically contain some commercial properties that provide services for local residents. The boundaries of a neighborhood can be physical such as a lake, stream or major highway or they may be less easily discernible such as changes in prevailing land use or occupant characteristics.
Location:	The subject property is located in the central portion of the City of San Dimas, at the southwest corner of East Bonita Avenue and South Dimas Canyon Road. San Dimas is a city located in the northest sector of Los Angeles County, approximately 45 miles northeast of the City of Los Angeles.
	As of the 2004 census, San Dimas had a total population of 36,200, and encompasses 15.5 square miles. The Foothill Freeway (I-210) connects San Dimas to the San Fernando Valley, and the San Bernardino Freeway (I-10) connects it to downtown Los Angeles. Situated at the southwest

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 11

	corner of East Bonita Avenue and South San Dimas Canyon Road, the subject property is accessible to neighborhood services and employment centers. The location of the subject property is rated as average.
Access:	Primary roadways in the neighborhood include the east/west traffic arteries of East Foothill Boulevard, East Bonita Avenue, East Arrow Highway, and Interstates IH-210 and IH-10. North/south traffic arteries include SH-57, North San Dimas Avenue, White Avenue, Garey Avenue and North Towne Avenue. All of the aforementioned north/south roadways provide direct access to both IH-210 and IH-10. IH-210 is approximately one mile north of the subject property and IH-10 is approximately 2.5 miles south. The well-managed network of regional highways renders good access to and within the neighborhood.
	The subject neighborhood is accessible to neighborhood services and employment centers. Recreational parks and lakes are located within a short commute of the subject neighborhood. Commercial, retail uses and local businesses are abundant along the two Interstates and East Bonita Avenue. Travel time to downtown Los Angeles, approximately 45 miles southwest, is around one hour. Public services, including schools and medical facilities, are in close proximity.
Land Use:	The subject neighborhood is a mature commercial and residential district. The area realized much of its growth in the mid 1960’s to late 1970s. Most of the apartments in the area were built in the 1970s. As the City of San Dimas has become fairly densely populated, most of the land in the subject neighborhood has been developed. Approximately 85% of the land area is developed with limited land available to accommodate additional development.
	Multifamily, single-family and commercial development is prevalent along the primary roadways. Underutilized land in the form of public green belts, parks and athletic fields are in close proximity to the subject property and scattered throughout the neighborhood. The predominate land uses in the neighborhood are both commercial and residential in nature. Residential uses consist of both single and multifamily housing developments.

Adjacent Land Uses:	South:	Single-family residential housing
	North:	Office complex and townhomes
	East:	Bicycle shop and seminary
	West:	Single-family residential housing

New Construction:	Due to the mature nature of the neighborhood and limited availability of vacant land suitable for development, no new construction was noted in the immediate vicinity of the subject property.
Change in Current Use	The neighborhood can be classified as being in a mature stage of its life cycle as there is limited land available to accommodate new

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 12

development. This area of San Dimas is anticipated to remain a desirable commercial and residential location. No material change in existing land uses is anticipated.

Conclusion

The property is located in the central portion of the City of San Dimas. The area is easily accessible from all parts of San Dimas as well as cities from beyond due to its proximity to two interstate freeways. As a result of its desirable location, the area has proven to be a desirable residential and commercial location. Employers are located in close proximity to the subject neighborhood. The presence of employers in the area as well as its close proximity to educational and medical facilities has enhanced the desirability of the neighborhood as a residential location. Area residents are offered a broad range of services and good access to other parts of San Dimas and the greater Los Angeles area.

SITE ANALYSIS

Location	The site is located in the central portion of the City of San Dimas, at the southwest corner of East Bonita Avenue and South San Dimas Canyon Road.
Size	The site is near square in shape and consists of a total land area of approximately 8.16 ± acres.
Excess Land	None
Topography	Generally level and on grade with the bounding streets of East Bonita Avenue and South San Dimas Canyon Road.
Site Improvements	The approximate 8.16 ± acre site is improved with a 168-unit garden-style apartment community known as the Mountain View Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	East Bonita Avenue is a neighborhood collector street that is oriented in an east/west direction. South San Dimas Canyon Road is oriented in an north/south direction
Desirability of Location	Average
Access to Major Arteries	Good
Access to Local Arteries	Average
Curb Appeal	Average
Ingress/Egress	Average – adequate road frontage along two minor neighborhood collector streets.
Visibility from Road	Average
Public Transportation	Average
Neighborhood Appearance	Average
Flood Zone Map	According to the Federal Emergency Management Agency (FEMA), the property is located within Zone C, an area outside any special flood hazard areas as defined by FEMA.
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 13

	encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property which would disclose any land use restrictions which may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Conclusion	The subject represents a desirable site for multifamily development.

REAL ESTATE TAXES

Assessor’s Parcel No:	8390-014-027 (Los Angeles County Assessor)
Effective tax rate	1.2927966 per $100 of assessed value
Equalization Rate	Assessed values for real property in Los Angeles County are based on 100% of the market value estimated for the property by the county assessor.
2005-2006 Assessed Value	$11,283,596
Tax Analysis:	The subject property is situated within the taxing jurisdictions of the City of San Dimas, Los Angeles County, Unified Schools, Community College, Flood Control, Metro Water District and a General Tax Levy. The Los Angeles County Property Appraiser assesses the property for all of the applicable taxing jurisdictions.
	The subject property is under the taxing jurisdiction of Los Angeles County. The Proposition 13 Amendment to the California State Constitution limits the maximum annual tax on real property to one percent of market value plus an additional sum to pay for bonded indebtedness on affected property. Per Proposition 13, properties are only reassessed upon sale or significant improvement. Between these events, the assessed value may be increased by a maximum of 2.0% per year. For the purposes of this report, the assessed value is based on an assumed sale at our concluded market value. Our estimates of property taxes used in the direct capitalization method assumes a sale of the subject property at our market value conclusion and the above effective tax rate.
Estimated Tax Liability	$400,000 (Concluded value of $30,800,000 multiplied by the effective tax rate of approximately 1.30 per $100 of assessed value.)

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 14

ZONING

Zoning:	The site is zoned MF-16 (Multiple-Family Zone) by the City of San Dimas.
Permitted Use	The MF zoning designation is intended to provide for the development of medium and high density multiple-family dwelling projects, to ensure that such development is compatible with contiguous uses, to encourage well planned neighborhoods through creative and imaginative site planning and to ensure integrated design and unified control of design. The MF-16 designation shall have a maximum density of 16 units per acre.
Site Area:	N/A
Maximum Ground Coverage:	60 percent of the total lot or parcel area.
Maximum Height:	2 stories or 30 feet
Maximum Density:	16 units per acre
Front Set Back:	Average depth of 25 feet with minimum depth of 15 feet.
Side Yard:	20 to 30 feet
Rear Set Back:	20 feet
Minimum Floor Area:	450 to 850 (0-3 bedrooms, add 200 feet per additional bedroom)
Parking Requirements:	No requirement
Comments:	It appears as though the existing improvements represent a non-conforming use of the site with regard to zoning, in that the developed density exceeds the allowed density.

DESCRIPTION OF IMPROVEMENTS

The subject improvements consist of a 168-unit garden-style apartment complex known as the Mountain View Apartments. The following offers a description of the improvements.

KTR Site Inspector:	Charles K. Russell
Date of Inspection:	November 17, 2006
Property Contact:	Sharry Rees
Year Built:	1978
Number Units:	168
Configuration/Stories:	Garden-style complex, 2-story residential structures
Net Rentable Area:	167,336 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls: Roof:	Stucco and wood trim Flat built-up
Doors and Windows:	Exterior entrance doors are solid core wood. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Central AC condensing units, heat provided by a gas-fired boiler system.
Plumbing:	Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet and sink and combination fiberglass bathtub/shower unit. Hot water is provided by a gas-fired boiler system.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 15

Electrical: Parking and Walkways:	Property is sub-metered for electric, electricity is paid by the tenant. The parking areas and internal roadways are asphalt paved. Walkways are concrete paved. There is adequate on-site parking provided.
INTERIOR
Walls and Ceilings:	Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over padding and sheet vinyl in living areas, carpet over padding in bedrooms and sheet vinyl in the kitchens and bathroom.
Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and stainless steel or porcelain sink. Appliances include a combination range/oven, exhaust fan, disposal and dishwasher.
PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes
Fitness Center:	Yes
Clubroom:	No
Tennis Court:	No
Basketball Court:	No
On-site Management Office:	Yes
Laundry Room:	Yes
Microwave:	No
Compactor:	No
Fireplace:	No
Ceiling Fans:	In living area
Cable TV:	Yes (prewire)
Balconies/Patios:	Yes
Perimeter Fencing:	No
Access Controlled Entry:	No
Other:	Covered parking, playground and sauna

The following chart illustrates the property’s unit breakdown and size.

MOUNTAIN VIEW APARTMENTS – UNIT MIX

Unit Type	No, of units		Size (SF)		Total (SF)
2BR/1BA		68		912		62,016
2BR/2BA		56		996		55,776
3BR/2BA		44		1126		49,544
Totals/Average		168		996		167,336

CONDITION/MAINTENANCE

Overall Condition:	Average
Landscaping:	Average
Parking:	Adequate
Sidewalks/Curbs:	Average
Walls/Fences:	Average
Refuse Area:	Average
Basement:	N/A

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 16

Health Club:	Average
Club Room:	Average
Exterior Walls:	Average
Roofs:	Average
Stairs:	Average
Lobby/Hallways:	Average
Entry Doors:	Average
Patios/Balconies:	Average
Elevators:	Average
Apartment Interiors:
Overall:	Average
Kitchen Equipment:	Average
Mechanical Equipment:	Average
Bathroom:	Average
Walls/Ceilings:	Average
Layout:	Average
Light and View Quality:	Average
Cosmetic Repairs:	Our physical inspection revealed that the subject property is in average condition.
Deferred Maintenance:	No material elements of deferred maintenance were noted during the appraiser’s inspection of the property and on-site management reported none.
Comparability:	Similar to competing properties of the same vintage.
Observed Effective Age:	20 years (lower than actual age due to adequate upkeep and maintenance of the improvements)
Economic Life:	45 years (per Marshall Valuation Service Manuel)
Remaining Economic Life:	25 years
General Comments:	Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 17

APARTMENT MARKET OVERVIEW

The following apartment market analysis is designed to provide the reader an understanding of the Los Angeles area apartment market and its direct influence on the San Dimas market. The most recent source of data available to the appraisers was the “Hendricks & Partners Apartment Update 2006-Review”, the third quarter 2006 REALFACTS Apartment Vacancy/Rent Survey for the Los Angeles County apartment market and the “Apartment Research Report-October 2006”, prepared by Marcus & Millichap.

LOS ANGELES COUNTY APARTMENT MARKET

Overview	The Los Angeles apartment market was ranked 5th in the nation out of 37 markets nationally in 2005 and into 2006, down from rank No. 3 in 2004, and No. 2 in 2003, by Marcus & Millichap, a national brokerage firm specializing in apartment investment sales.
	Most economic reports project that long-term job growth in the Los Angeles area should be in the range of 40,000 to 80,000 per year. The Los Angeles Economic Development Council reports a growth of 50,800 new jobs in the Los Angeles area over the year ending June 2006, equating to a gain of 1.3%. According to recent forecasts, trade and tourism are set for record years in 2006. The number of overnight visitors to the region is expected to hit an all-time high of 25.7 million, up 32% from 2005. The regions growth is fueling continued demand for apartments. However, a shortage of developable land, high land prices and rising construction costs are formidable challenges for developers. Generally, demand for one rental unit is generated by the creation of six jobs. Based on this ratio, demand for roughly 7,000 to 13,000 new units per year would be required to meet annual demand. Marcus & Millichap reports 5,000 to 6,000 units each year will be added in the foreseeable future. Of the 5,000 units completed in 2005, roughly one-third were luxury apartments built in the Downtown submarket. Completions will increase slightly this year, as developers deliver 5,100 units. While the total this year is up from 2005, it represents a minor 0.7% addition to existing apartment inventory. Clearly, 5,000 to 6,000 new apartment units per year are not nearly enough to meet the demand created by the roughly 120,000 new residents to the county each year.
	Home price appreciation moderated across the L.A. area in 2006 as affordability waned and interest rates began to tick up. Sales of existing homes fell 14% in the first half of the year compared to a year prior. For the year ending June 2006, the median home price gained a moderate 12%, down from the appreciation levels of more than 15% a year ago and nearly 32% in 2004. Although price appreciation has slowed, home purchases remain out of reach for many residents, expanding the renter pool and forcing many to remain in the rental market for the foreseeable future. Consequently, vacancy rates are expected to end the year at 3%, 10 basis points lower than the rate at the end of 2005. Tight market conditions are allowing owners to raise rents at an accelerated pace. By year end, the average asking rent is expected to reach $1,360 per month, up 6.7% from 2005, while the average effective rent posts a similar gain to $1,320 per month.

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 18

Approximately 1,700 units came online during the first half of 2006, with completions expected to accelerate in the second half of the year. In addition, roughly 15,000 units are in various stages of planning. There are currently 6,700 apartments under construction in Los Angeles County, with 3,400 units scheduled for completion by year end. The majority of new development is centered in downtown Los Angeles, with 2,000 units under development, accounting for almost 30% of total construction.

With construction and absorption keeping pace with one another, the average apartment vacancy rate is expected to end the year at 3%.

LOS ANGELES COUNTY
APARTMENT MARKET CHARACTERISTICS

Number of Complexes		539
Total Unit Inventory		127,512
Avg. Year Built		1978
Avg. No. Units Per Complex		236
Avg. Occupancy Rate		96.0	%
Avg. Rent/Unit/Month	$	1,559

Source: RealFacts, 4Q’05

The following table shows the historical apartment rent growth by unit type and total market occupancy rates for Los Angeles County.

LOS ANGELES COUNTY HISTORICAL RENT AND OCCUPANCY TREND

																												4 Yr.
Unit Type	1998			1999			2000			2001			2002			2003			2004			2005			2006			Change
Studio	$	697		$	733		$	822		$	894		$	929		$	951		$	992		$	1,054		$	1,139			22.6	%
Jr. 1/1	$	670		$	713		$	813		$	879		$	1,010		$	1,116		$	1,163		$	1,188		$	1,248			23.6	%
1/1	$	840		$	894		$	1,008		$	1,087		$	1,135		$	1,186		$	1,240		$	1,305		$	1,395			22.9	%
2/1	$	787		$	834		$	919		$	1,029		$	1,103		$	1,148		$	1,205		$	1,262		$	1,332			20.8	%
2/2	$	1,095		$	1,145		$	1,281		$	1,401		$	1,456		$	1,530		$	1,597		$	1,688		$	1,794			23.2	%
2 TH	$	1,141		$	1,282		$	1,406		$	1,514		$	1,595		$	1,663		$	1,583		$	1,666		$	1,760			10.4	%
3/2	$	1,225		$	1,297		$	1,405		$	1,528		$	1,628		$	1,685		$	1,729		$	1,818		$	1,949			19.7	%
3 TH	$	1,601		$	1,787		$	1,996		$	2,118		$	2,152		$	2,083		$	2,056		$	2,319		$	2,361			9.7	%
Wtg. Avg.	$	938		$	995		$	1,110		$	1,205		$	1,268		$	1,327		$	1,382		$	1,465		$	1,559			22.9	%
Occupancy		96.3	%		97.3	%		97.5	%		96.4	%		95.4	%		95.3	%		95.2	%		95.9	%		96.0	%		0.8	%

Source: RealFacts

The data shows the consistent strength of the county apartment market with a high average occupancy over 95% for the last eight years. Rent growth also averaged a four year change of 22.9%

The following table shows the Los Angeles County trend in apartment rents and occupancy quarter-by-quarter over the last 24 months. This data gives a more detailed look at recent market trends. This data indicates the county apartment market vacancy has fallen in a narrow range from the third quarter of 2004 to the third quarter of 2006, and market rental rates have increased 8.4% over the last year.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 19

LOS ANGELES COUNTY RECENT RENT AND OCCUPANCY TREND

																												Prev. Yr.
Unit Type	3Q ‘04			4Q ‘04			1Q ‘05			2Q ‘05			3Q ‘05			4Q ‘05			1Q ‘06			2Q ‘06			3Q ‘06			% Chg.
0/1	$	995		$	1,004		$	1,023		$	1,054		$	1,056		$	1,084		$	1,116		$	1,135		$	1,166			10.4	%
Jr. 1/1	$	1,175		$	1,143		$	1,149		$	1,184		$	1,209		$	1,211		$	1,233		$	1,233		$	1,280			5.8	%
1/1	$	1,252		$	1,265		$	1,277		$	1,297		$	1,313		$	1,335		$	1,362		$	1,393		$	1,430			8.9	%
2/1	$	1,218		$	1,221		$	1,231		$	1,256		$	1,274		$	1,287		$	1,320		$	1,324		$	1,353			6.2	%
2/2	$	1,613		$	1,629		$	1,656		$	1,667		$	1,696		$	1,733		$	1,756		$	1,789		$	1,835			8.2	%
2 TH	$	1,568		$	1,580		$	1,631		$	1,667		$	1,669		$	1,698		$	1,738		$	1,770		$	1,773			6.2	%
3/2	$	1,746		$	1,757		$	1,791		$	1,815		$	1,828		$	1,838		$	1,861		$	1,973		$	2,013			10.1	%
3 TH	$	2,009		$	2,017		$	2,320		$	2,341		$	2,288		$	2,325		$	2,371		$	2,362		$	2,350			2.7	%
Wtg. Avg.	$	1,392		$	1,407		$	1,435		$	1,455		$	1,472		$	1,498		$	1,525		$	1,556		$	1,595			8.4	%
Occupancy		95.2	%		95.8	%		95.3	%		95.5	%		96.7	%		95.9	%		96.0	%		95.7	%		96.2	%		-0.5	%

Source: RealFacts

The L.A. North/Ventura County market, in which the subject property resides, saw strong leasing activity, boosted by demand for rentals and the availability of new product, result in the absorption of 215 units during the second quarter, up from 55 units absorbed a year earlier. Year-to-date 2006 has an absorption of 378 units compared to 2005’s annual absorption of 334 units.

A total of 346 new apartment units came online during second quarter 2006, in contrast to one year ago, when no new units entered lease-up. Expectations are that more than 1,500 units will come online before the end of the year, which surpasses levels reported from 2001 to 2004. Before the end of the year, four properties near the interchange of the Hollywood and Ventura freeways are expected to add approximately 1,000 units and another 260 units are scheduled to be completed in Woodland Hills.

Multifamily permits, including rental and for-sale units, increased to 1,380 units in the second quarter, up from the 1,355 units one year earlier. Year-to-date permits total 3,350 units, 25% ahead of the same time last year.

With condo conversions and positive absorption in the first quarter, the average apartment vacancy rate decreased from 4.0% in the second quarter of 2005 to 3.7% in the second quarter of 2006.

Rent growth increased to 7.4% for the year ended June 2006, compared to a gain of 4.2% a year ago. This is the largest increase in five years

Mountain View Apartments
San Dimas, California December 8, 2006
Page 20

L.A. NORTH/VENTURA COUNTY 2006 SECOND QUARTER VACANCY & RENT

	Vacancy			Vacancy			Avg. Rent			Avg. Rent			Avg. Rent		Avg. Rent
Submarket	2006			2005			Increase 2006			Increase 2005			2006		2005
Burbank/Glendale		5.0	%		3.3	%		8.6	%		6.3	%	$	1,823	$	1,679
Northeast Valley		1.7	%		2.2	%		6.4	%		5.2	%	$	1,038	$	975
Western Valley		8.8	%		8.1	%		10.7	%		0.7	%	$	1,741	$	1,573
Northwest		4.6	%		4.1	%		6.9	%		6.0	%	$	1,411	$	1,319
Canoga/Reseda		2.7	%		2.8	%		4.8	%		4.1	%	$	1,179	$	1,125
South Valley		3.3	%		5.3	%		5.6	%		4.9	%	$	1,592	$	1,507
Mid-Valley		2.6	%		4.0	%		6.0	%		3.8	%	$	1,135	$	1,070
Tarzana/Woodland Hills		2.5	%		2.8	%		10.1	%		2.5	%	$	1,621	$	1,473
Ventura County		3.6	%		4.8	%		7.8	%		2.2	%	$	1,425	$	1,322
Santa Clarita		4.2	%		4.2	%		4.3	%		5.3	%	$	1,425	$	1,366
Desert Communities		2.7	%		2.6	%		7.5	%		6.2	%	$	937	$	871
Totals		3.7	%		4.0	%		7.4	%		4.2	%	$	1,416	$	1,318

Conclusion The overall Los Angeles area’s economy should continue to post solid employment and population growth over the coming years. The subject’s L.A. North/Ventura County market area seems to be at a slightly higher level of occupancy but lower level of rent than the overall Los Angeles area. As demand and new construction in the L.A. North/Ventura County continue to be on an equal par, occupancy is anticipated to remain high over the coming year. As occupancy levels continue to be high, concessions will likely continue to be nonexistent. The remainder of the Los Angeles area has seen an increase in apartment development, attempting to keep up with job and demand growth.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 21

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Rent Comparable #1
Address:	Waterstone San Dimas (The Lakes at Raintree Village) 444 North Amelia Avenue San Dimas, California
Number of Units:	N/A
Year Built:	Late 1970s (estimate)
Description:	Garden-style apartments with two-story residential buildings. Stucco, brick and wood sided exterior walls, pitched roofs with asphalt shingle cover.
Amenities:	Apartment features include standard kitchen appliances, vaulted ceilings, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pools, spas, clubhouse, tennis court sand volleyball court, covered parking, laundry facilities and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1-2BA		925	$	1,625	$	1.76
Totals/Average		925	$	1,625	$	1.76

Occupancy:	94%
Concessions:	December rent is free
Comments:	This property is located approximately two miles northwest of the subject property. It is similar to the subject property in terms of amenities, age and physical characteristics. It is inferior as to location and curb appeal.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 22

Rent Comparable #2
Address:	Amber Ridge 2421 Foothill Blvd La Verne, California
Number of Units:	N/A
Year Built:	1976
Description:	Garden-style apartments with two-story residential buildings. Stucco and wood trim exterior walls, flat roofs with built-up cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pool, fitness center, covered parking, laundry facilities and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1-2BA		1,000	$	1,475	$	1.48
3BR/2BA		1,434	$	2,350	$	1.64
Totals/Average		1,217	$	1,913	$	1.56

Occupancy:	89%
Concessions:	No concessions at this time
Comments:	This property is located approximately two miles northwest of the
	subject property. It is similar to the subject property in terms of
	amenities, age and physical characteristics. It is inferior as to location
	and curb appeal.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 23

Rent Comparable #3
Address:	Monte Vista
	1825 Foothill Blvd.
	La Verne, California
Number of Units:	N/A
Age:	Early 1970s (estimate)
Description:	Garden-style apartments with two-story residential buildings. Stucco and wood trim exterior walls, flat roofs with built-up cover.
Amenities:	Apartment features include standard kitchen appliances, mini-blinds, patio/balcony and ceiling fans. Property features include swimming pool, fitness center, gated access, laundry facility and on-site management.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1BA		902	$	1,410		$	1.56
2BR/1BA		950	$	1,475		$	1.55
2BR/2BA		985	$	1,545		$	1.57
3BR/2BA		1,080	$	1,740		$	1.61
3BR/2BA		1,115	$	1,905		$	1.71
Totals/Average		1,006	$	1,615		$	1.60

Occupancy:	86%
Concessions:	December rent is free
Comments:	This property is located approximately three miles northwest of the subject property. It is similar to the subject property in terms of amenities and physical characteristics. It is inferior as to location, age and curb appeal.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 24

Rent Comparable #4
Address	Terramonte
	150 West Foothill
	Pomona, California
Number of Units:	N/A
Age:	1978
Description:	Garden-style apartments with two-story residential buildings. Stucco, Brick and wood trim exterior walls, pitched roofs with asphalt-shingle cover.
Amenities:	Apartment features include standard kitchen appliances, patio/balcony mini-blinds and ceiling fans. Property features include swimming pool, fitness center, business center, detached garages and laundry facility.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1BA		888	$	1,375		$	1.55
2BR/2BA		1,002	$	1,460		$	1.46
Totals/Average		945	$	1,418		$	1.51

Occupancy:	N/A
Concessions:	1/2 month free rent
Comments:	This property is located approximately five miles northwest of the subject property. It is similar to the subject property in terms of age, physical characteristics and curb appeal. It has slightly superior amenities, with an inferior location.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 25

Rent Comparable #5
Address:	Club Pacifica (The Laguna)
	21042 East Arrow Highway
	Covina, California
Number of Units:	N/A
Year Built:	Late 1970s to early 1980s (estimate)
Description:	Garden-style apartments with two-story residential buildings. Stucco, Brick and wood trim exterior walls, pitched roofs with asphalt-shingle cover.
Amenities:	Apartment features include standard kitchen appliances, patio/balcony mini-blinds, w/d connections and ceiling fans. Property features include swimming pool, spa, fitness center, recreation room, detached garages, tennis court, racquetball courts and laundry facility.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
2BR/1BA		879	$	1,395		$	1.59
2BR/2BA		1,000	$	1,475		$	1.48
Totals/Average		940	$	1,435		$	1.54

Occupancy:	N/A
Concessions:	No concessions at this time
Comments:	This property is situated three miles west of the subject property. It is similar to the subject property in terms of age, physical characteristics and curb appeal. It has superior amenities, with an inferior location.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 26

ANALYSIS

The subject property is situated in a good San Dimas location at the corner of East Bonita Avenue and South San Dimas Canyon Road. It is competitive with other properties in terms of location, age condition, amenities, and unit size. The tables below illustrate the comparables with the most similar floor plans in relation to the subject’s floor plans.

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month	Rent/SF
Subject		912	$1,493	$1.64
Subject		996	$1,537	$1.54
The Lakes		925	$1,625	$1.76
Amber Ridge		1,000	$1,475	$1.48
Monte Vista		902-985	$1,410-$1,545	$1.56-$1.57
Terramonte		888-1,002	$1,375-$1,460	$1.46-$1.55
Club Pacifica		879-1,000	$1,395-$1,475	$1.48-$1.59

THREE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month	Rent/SF
Subject		1,126	$1,837	$1.63
Amber Ridge		1,434	$2,350	$1.64
Monte Vista		1,080-1,115	$1,740-$1,905	$1.61-$1.71

The subject is similar to The Lakes in terms of age, amenities and physical characteristics, but has inferior curb appeal. The subject is also similar to Amber Ridge in terms of age, amenities and physical characteristics, but has a superior location and curb appeal. Monte Vista is similar in terms of amenities and physical characteristics but inferior in terms of location, age and curb appeal. The subject is inferior to Terramonte and Club Pacifica in terms of amenities but has a superior location to both of these comparables. In general, the subject’s rental rates should be below the rents achieved by the Terramonte and Club Pacifica apartments, similar to the rents representative of Amber Ridge and Monte Vista apartments and below the rents achieved by The Lakes, only because of this property’s recently updated status.

As indicated above, the rent (on a per square foot basis) for the subject’s two-bedroom floor plans are within a tolerable variance of the high range of rents illustrated by the Monte Vista, Terramonte and Club Pacifica apartments, above those of Amber Ridge and below The Lakes apartments as analyzed above.

Only the Amber Ridge and Monte Vista apartments offer a three bedroom floor plan. The quoted rents for the subject’s three-bedroom units (on a per square foot basis) are within the range of rents illustrated by both of these comparables. As mentioned above, the subject is superior to both of these comparables, and its rental rates should be above those implied by these two comparables. The rental rates for the subject’s three bedroom units are deemed to be market oriented.

Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property.

ECONOMIC RENT POTENTIAL-MOUNTAIN VIEW APARTMENTS

Unit Type	Mix		Size (SF)		Total Area		Economic Rent/Unit		Economic Rent/SF		Total Rent
2BR/1BA		68		912		62,016	$	1,493	$	1.64	$	101,524
2BR/2BA		56		996		55,776	$	1,537	$	1.54	$	86,072
3BR/2BA		44		1126		49,544	$	1,837	$	1.63	$	80,828
Totals/Average		168		996		167,336	$	1,598	$	1.60	$	268,424

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 27

HIGHEST AND BEST USE

According to the Third Edition of The Dictionary of Real Estate Appraisal, published by the Appraisal Institute, highest and best use is defined as:

“the reasonably probable and legal use of vacant land or an improved property; which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability”.

HIGHEST AND BEST USE AS IF VACANT
Surrounding Land Uses	Equally divided between commercial, single-family and multi-family developments along east Bonita Avenue and South San Dimas Canyon Road.
Physically Possible	The size and accessibility of the site would allow for most development. However, development intensity would be restricted by the subject property’s location, along East Bonita Avenue, a lightly traveled neighborhood collector street that can only handle a limited level of vehicular traffic. The majority of high intensity retail and commercial uses in the neighborhood are situated at major intersections. Given the site’s secondary location, high intensity retail use is not indicated. Of the potential legal uses, multifamily use would appear to be the most appropriate physically possible use.
Legally Permissible	Multifamily use is the intended use of the site.
Financial Feasible	The determination of financial feasibility is dependent primarily on demand. The immediate market exhibits strong demand characteristics as evidenced by stable rental rates, high occupancy levels and the lack of rent concessions in competing apartment projects. New apartment construction is occurring in various areas throughout the Los Angeles area indicating that financial feasibility exists to warrant the cost of such construction. New apartment development is considered to be financially feasible at this time.
Conclusion	Based on the three criteria previously discussed, the maximally profitable use of the site would be multifamily residential development.
HIGHEST AND BEST USE AS IMPROVED
Current Improvements	168-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 28

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of nontypical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the San Dimas/Los Angeles area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 29

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $268,424. The annual gross rent potential estimated for the apartment units total $3,221,088.

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease ranges from 3.4% in 2003 to 5.9% in 2005. The year-to-date amount for 2006 equates to 5.9%. Based on the previous history at the subject property, we have deducted a loss to lease expense of 5.5% of the potential gross income or $177,160.

Concessions: Rent concessions in the market are minimal or non-existent at area apartments. Traditional apartment concessions consist of reduced or free rent over a portion of the lease term. As a percentage of the property’s gross rent potential, concessions amounted to 0.0% in 2003, 0.5% in 2004 and 0.7% in 2005. Concessions are 1.6% for 2006 (annualized). For our analysis, concessions are projected at 1.0% of the estimated gross rent potential or $32,211.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 92% occupied. On site management indicated that the property generally maintains an occupancy in the high 80% to low 90% range. The properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 86% to 94%. The average occupancy of the income comparables surveyed equates to approximately 90%. Information presented in the Apartment Market Overview section of this report indicates that the average occupancy for properties within the Los Angeles area is approximately 96%, an amount higher than the estimated average occupancy produced by primary comparables in the immediate area of the subject property.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 30

As indicated in the Economic Rent Analysis section of this report, the quoted rent structure for the subject property seems to be market oriented based on a review of the comparable rentals in the area. It appears as though the subject’s occupancy level is lower, but within a tolerable range to those levels realized by competing properties in the area.

Historically, vacancy and credit loss at the subject property was 9.1% of the gross rent potential in 2003, 8.0% in 2004 and 7.5% in 2005. Annualized 2006 has vacancy and credit loss at 7.7%.

Based on the subject’s annualized 2006 figures and current level of occupancy, tempered against the average occupancy reported by competing properties in the influencing area and occupancy level indicated for properties in the Los Angeles North/Ventura County submarket, a vacancy factor of 6.5% is estimated for the subject property. In addition, a 1.0% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 7.5%.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Total utility income in 2003 was $67,161, decreasing to $65,904 in 2004 and increasing to $69,500 in 2005. Annualized 2006 utility income is $77,926. Based on the historical and annualized utility income receipts, we have estimated Utility Income to be $73,920 or $440 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts range from 4.6% to 6.5%. Other income is annualized at 4.5% in 2006. Based on historical and annualized 2006 other income receipts, we have estimated Other Income to be approximately 4.5% of the gross rent potential or $142,800.

Expenses: In order to project expenses for valuation purposes, the expenses incurred in the operation of the subject property over the past three years have been reviewed. The expenses for 2006 (Annualized), have also been considered. Typical operating expenses for garden apartments in the Pasadena/Los Angeles area, as reported by IREM have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property and outlines the operating budget for the current year.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 31

SUMMARY OF OPERATING HISTORY– MOUNTAIN VIEW APARTMENTS

	2003						2004						2005						Annualized 2006 (Thru October)
Item	Actual			Per Unit			Actual			Per Unit			Total			Per Unit			YTD			Annualized			Per Unit
Gross Rent Potential	$	2,541,584		$	15,128		$	2,705,864		$	16,106		$	2,921,184		$	17,388		$	2,636,584		$	3,163,901		$	18,833
Loss to Lease	$	(86,717	)	$	(516	)	$	(122,398	)	$	(729	)	$	(171,838	)	$	(1,023	)	$	(154,614	)	$	(185,537	)	$	(1,104	)
Concessions	$	(673	)	$	(4	)	$	(13,403	)	$	(80	)	$	(19,144	)	$	(114	)	$	(41,627	)	$	(49,952	)	$	(297	)
Vacancy/Credit Loss	$	(231,011	)	$	(1,375	)	$	(215,936	)	$	(1,285	)	$	(218,010	)	$	(1,298	)	$	(203,469	)	$	(244,163	)	$	(1,453	)
Utility Income	$	67,161		$	400		$	65,904		$	392		$	69,500		$	414		$	64,938		$	77,926		$	464
Other Income	$	164,881		$	981		$	132,122		$	786		$	134,943		$	803		$	119,224		$	143,069		$	852
Effective Gross Income	$	2,455,225		$	14,614		$	2,552,153		$	15,191		$	2,716,635		$	16,170		$	2,421,036		$	2,905,243		$	17,293
Utilities	$	157,664		$	938		$	160,747		$	957		$	149,677		$	891		$	130,991		$	157,189		$	936
Repairs & Maintenance	$	174,017		$	1,036		$	150,645		$	897		$	133,241		$	793		$	159,552		$	191,462		$	1,140
Administrative	$	47,269		$	281		$	55,172		$	328		$	54,367		$	324		$	42,730		$	51,276		$	305
Marketing	$	33,447		$	199		$	52,765		$	314		$	59,745		$	356		$	57,638		$	69,166		$	412
Payroll	$	167,651		$	998		$	206,385		$	1,228		$	218,978		$	1,303		$	165,349		$	198,419		$	1,181
Management	$	113,646		$	676		$	108,925		$	648		$	115,152		$	685		$	102,607		$	123,128		$	733
Insurance	$	73,385		$	437		$	71,510		$	426		$	73,868		$	440		$	74,076		$	74,076		$	441
Real Estate Taxes	$	129,767		$	772		$	136,699		$	814		$	141,775		$	844		$	120,905		$	120,905		$	720
Total Expenses	$	896,846		$	5,338		$	942,848		$	5,612		$	946,803		$	5,636		$	853,848		$	1,024,618		$	6,099
Net Operating Income	$	1,558,379		$	9,276		$	1,609,305		$	9,579		$	1,769,832		$	10,535		$	1,567,188		$	1,880,626		$	11,194

Utilities	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject’s historical utilities expense range from a low of $891 per unit in 2005 to a high of $957 per unit in 2004. An amount equivalent to $936 per unit is reflected in 2006 (annualized). Utilities are adjusted for anticipated inflation and processed at $925 per unit or $155,400.
Repair & Maintenance:	This category includes general repair and maintenance items, contract services and turnover expenses. The subject’s historical repair and maintenance expense range from a low of $793 per unit in 2005 to a high of $1,036 per unit in 2003. An amount equivalent to $1,140 per unit is annualized in 2006. The repairs and maintenance expense is estimated at $950 per unit or $159,600.
Administrative	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense ranges from a low of $281 per unit in 2003 to a high of $328 per unit in 2004. An amount equivalent to $305 per unit is reflected in 2006 (annualized). Administrative expenses are projected at $310 per unit or $52,080.
Marketing	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense ranges from a low of $199 per unit in 2003 to a high of $356 per unit in 2005. An amount equivalent to $412 per unit is annualized in 2006. Marketing expenses are projected at $350 per unit or $58,800.
Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject’s historical payroll expense ranges from a low of $998 per

Mountain View Apartments	December 8, 2006
San Dimas, California	Page 32

	unit in 2003 to a high of $1,303 per unit in 2005. An amount equivalent to $1,181 per unit is annualized in 2006. Payroll expenses are projected at $1,250 per unit or $210,000.
Management	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.5% of Effective Gross Income. A market-oriented fee in the range of 4.0% to 4.5% or 4.25% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject’s management fee is estimated to be $126,941 or $756 per unit.
Insurance	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance expense ranges from a low of $426 per unit in 2004 to a high of $440 per unit in 2005. An amount equivalent to $441 per unit is reflected in 2006 (annualized). Insurance expenses are projected at $440 per unit or $73,920.
Taxes	As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $400,000 or $2,381 per unit.
Reserves for Replacements	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Given the age of the subject property, a reserve for replacement allowance aligned with the higher end of the range of $350 per unit or $58,800 is estimated for the subject property.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provide a return on owner’s equity. We have estimated the NOI to be $1,691,314. The subject’s income and expense pro forma is summarized below.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 33

OPERATING PRO FORMA

Gross Potential Rent	$	3,221,088		$	19,173
Loss to Lease	$	(177,160	)	$	(1,055	)
Concessions	$	(32,211	)	$	(192	)
Vacancy/Credit Loss	$	(241,582	)	$	(1,438	)
Utility Income	$	73,920		$	440
Other Income	$	142,800		$	850
Effective Gross Income	$	2,986,855		$	17,770
Utilities	$	155,400		$	925
Repairs & Maintenance	$	159,600		$	950
Administrative	$	52,080		$	310
Marketing	$	58,800		$	350
Payroll	$	210,000		$	1,250
Management	$	126,941		$	756
Insurance	$	73,920		$	440
Real Estate Taxes	$	400,000		$	2,381
Reserves	$	58,800		$	350
Total Expenses	$	1,295,541		$	7,712
Net Operating Income	$	1,691,314		$	10,067

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.
Market Extraction	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

SUMMARY OF MARKET DERIVED OVERALL RATES

Sale 1

Sale 2

Sale 3

Sale 4

Sale 5

Name

The Sedona

Del Prado

Montego Palms

Woodbridge

Chateau

Sale Date

Jul-06

Jun-06

May-06

Aug-05

May-05

Cap Rate (OAR)

5.8

%

5.9

%

5.5

%

5.8

%

4.9

%

The sales exhibit overall rates that fall within a range from 4.9% to 5.9% and produce an average of 5.6%. The sales represent transactions of late 1960s to mid 1980s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are situated in Los Angeles area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that

Mountain View Apartments
San Dimas, California December 8, 2006
Page 34

	would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate of 5.5% is suggested.
Survey of Investors	The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the Third Quarter 2006` Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. Capitalization rates in the Los Angeles area are generally aligned with the low end of the survey range and below the national average. The rates produced by the sales outlined above are appropriately aligned with the low end of the survey range.
Conclusion	The sales exhibit overall rates that range from 4.9% to 5.9% and produce an average of 5.6%. Based on the indicators exhibited by the sales data and confirmed through review of investor surveys, an appropriate cap rate for the subject property is concluded to be 5.5%.

Valuation: Capitalizing the estimated Net Operating Income of $1,691,314 by a 5.5% rate results in a value conclusion of $30,800,000, rounded ($1,691,314 NOI ¸ 5.5% OAR = $30,751,164).

Final Value:                           $30,800,000

THE SALES COMPARISON APPROACH

The Sales Comparison Approach to value is the process of comparing recent sales of competitive properties. The estimated value derived via this approach represents the probable price at which the subject property would be sold by a willing seller to a willing buyer as of the date of value.

To estimate the property value by the Sales Comparison Approach, five multifamily apartment building sales, which are summarized in the following table, have been examined and analyzed. All of the sales are garden style apartments with similar physical characteristics within the Los Angeles area apartment market. The appraisal indicators exhibited by the sales data outlined in the following chart are utilized for purposes of estimating a value for the subject via the Sale Comparison Approach.

The price per apartment unit has been relied upon as the unit of comparison in this approach. The comparative process involves judgment as to the similarity between the subject property and the comparable sale property with regard to a variety of factors affecting value such as location, age and condition of the structure, market conditions, rent levels, property rights conveyed, financing terms, conditions of sale, operational efficiencies and other factors.

ANALYSIS OF SALES: This approach relies on an active market. Sufficient data from the Los Angeles area exists to formulate a value via the Sales Comparison Approach. Below are five sale comparables of similar vintage garden style apartments with similar characteristics to the subject property.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 35

SUMMARY OF COMPARABLE BUILDING SALES

Sale No.	1	2	3	4	5
Name	The Sedona On Laurel	Del Prado	Montego Palms	Woodbridge	Chateau
Location	5717 Laurel Canyon	9150 Florence	385 S Catalina Ave	1101 Sepulveda Blvd	4524 N Clybourn
	North Hollywood, CA	Downey, CA	Pasadena, CA	Torrance, CA	Burbank, CA
Sales Price	$9,900,000	$9,425,000	$18,700,000	$42,800,000	$23,700,000
Sale Date	18-Jul-2006	2-Jun-2006	16-Mar-2006	1-Aug-2005	12-May-2005
Year Built	1986	1969	1973	1973	1974
No. of Units	54	56	84	214	110
Net Rentable Area (SF)	48,457	80,006	83,304	192,094	110,566
Avg. Unit Size (SF)	897	1,429	992	898	1,005
Occupancy	95%	97%	98%	95%	95%
Price/SF	$204.30	$117.80	$224.48	$222.81	$214.35
Price/Unit	$183,333	$168,304	$222,619	$200,000	$215,455
Net Income	$575,625	$555,243	$1,029,617	$2,482,630	$1,164,315
NOI/SF	$11.88	$6.94	$12.36	$12.92	$10.53
NOI/Unit	$10,660	$9,915	$12,257	$11,601	$10,585
Cap Rate (OAR)	5.8%	5.9%	5.5%	5.8%	4.9%
EGIM	11.4	11.4	12.7	11.8	13.4
Expense Ratio (OER)	34%	33%	30%	31%	34%

Comparable #1: This is the July 2006 sale of a 214-unit apartment complex that is located in North Hollywood, approximately 33 miles northwest of the subject property. The alternative location of the comparable property is rated as being inferior to that of the subject property. Built in 1986, construction is wood frame with stucco and wood trim exterior and flat built-up roof. This property is situated on 0.74 acres. Units include one and two-bedroom floor plans. Amenities include swimming pool, spa, security entrance, covered parking, picnic area and laundry facility. Unit amenities include standard kitchen appliances, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 897 square feet is similar to the subject’s 996 average square foot unit size.

In comparison to the subject, this property is superior in terms of age and condition and inferior as to location. Off setting adjustments will be applied to the sales price paid for this comparable.

Comparable #2: This is the June 2006 sale of a 56-unit apartment complex located approximately 21 miles southwest of the subject property, in the City of Downey. The alternative location of the comparable property is rated as being inferior to that of the subject property. This property was developed in 1969. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.7 acres. Apartment units include one, two and three-bedroom floor plans. Amenities include swimming pool, club house, fitness center, security entrance, spa and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, ceiling fans and mini-blinds. The comparable’s average unit size of 1,429 square feet is larger than the subject’s 996 average square foot unit size.

In comparison to the subject, this property is inferior in terms of location, but is superior with regards to average unit size. An upward adjustment will be made to the sales price per unit paid for this comparable for inferior location, and a downward adjustment for superior unit size.

Comparable #3: This is the March 2006 sale of a comparable property located approximately 19.5 miles northwest of the subject property in Pasadena. The location of the comparable property is rated as being superior to that of the subject. This property consists of an 84-unit apartment complex developed in 1973. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.2 acres. Apartment units include one and two-bedroom floor plans. Amenities include swimming pool, spa, recreation room, security entrance and laundry facility. Unit amenities include

Mountain View Apartments
San Dimas, California December 8, 2006
Page 36

standard kitchen appliances, central a/c, patio/balcony, mini-blinds and ceiling fans. The comparables’ average unit size of 992 square feet is similar to the subject’s 996 average square foot unit size.

In comparison to the subject, this property is superior in terms of location, which requires a downward adjustment to the sales price paid for this comparable.

Comparable #4: This is the August 2005 sale of a 214-unit apartment complex that is located in the City of Torrance, approximately 36 miles southwest of the subject property. The alternative location of the comparable property is rated as being superior to that of the subject property. Built in 1973, construction is wood frame with stucco and wood trim exterior and flat built-up roof. This property is situated on 10.2 acres. Units include one and two and three-bedroom floor plans. Amenities include swimming pools, gated access, recreation room and laundry facility. Unit amenities include standard kitchen appliances, patio/balcony, mini-blinds and ceiling fans. The comparable’s average unit size of 898 square feet is similar to the subject’s 996 average square foot unit size.

In comparison to the subject, this property is superior in terms of location, which requires a downward adjustment to the sales price paid for this comparable.

Comparable #5: This is the May 2005 sale of a comparable property located approximately 30 miles west of the subject property, in the City of Burbank. The alternative location of the comparable property is rated as being superior to that of the subject. This property consists of a 110-unit apartment complex developed in 1974. Construction is wood frame with stucco and wood trim exteriors and flat built-up roof. This property is situated on 1.3 acres. Apartment units include one and two-bedroom floor plans. Amenities include swimming pool, spa, fitness center, elevator, gated covered parking and laundry facility. Unit amenities include standard kitchen appliances, patios/balconies, fireplace, ceiling fans, central a/c and mini-blinds. The comparable’s average unit size of 1,005 square feet is similar to the subject’s 996 average square foot unit size.

In comparison to the subject, this property is superior in terms of location, which requires a downward adjustment to the sales price paid for this comparable.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 37

COMPARABLE SALES ADJUSTMENT GRID

Sale No.	1			2			3			4			5
Sales Price/Unit	$	183,333		$	168,304		$	222,619		$	200,000		$	215,455
Conditions of Sale		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Adjusted Price	$	183,333		$	168,304		$	222,619		$	200,000		$	215,455
Time		0.0	%		0.0	%		3.0	%		0.0	%		0.0	%
Time Adjusted Price	$	183,333		$	168,304		$	222,619		$	200,000		$	215,455
Location		5.0	%		15.0	%		-15.0	%		-10.0	%		-15.0	%
Age/Condition		-5.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Unit Size/Utility		0.0	%		-10.0	%		0.0	%		0.0	%		0.0	%
Amenities		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total Adjustments (%)		0.0	%		5.0	%		-15.0	%		-10.0	%		-15.0	%
Adjusted Sale Price	$	183,333		$	176,719		$	189,226		$	180,000		$	183,137

Source: Adjustments by KTR.

The unadjusted sales prices range from $168,304 to $222,619 per unit. After adjustment, the comparable sales illustrate a range from $176,719 to $189,226 per unit with an average of $182,483 per unit. All of the five sales required adjustments for location. One of the sales required adjustment because of superior age and condition and one of the sales required adjustment for superior average unit size. As no one sale required a significant degree of overall adjustment, equal emphasis is placed on each sale. Based on the adjusted indicators, a value of $182,500 per unit is estimated for the subject property. Application of the $182,500 per unit value indicator to the 168 units comprising the subject property results in a value estimate of $30,700,000, rounded.

$182,500 per unit x 168 units = $30,660,000

EGIM ANALYSIS: The sales illustrate EGIMs that range from 11.4 to 13.4. Important in selecting an appropriate EGIM is the review of corresponding operating expenses. There is an inverse relationship which generally holds among EGIMs and operating expenses. Properties which have higher expense ratios typically sell for relatively less and therefore produce a lower EGIM. The operating expense ratios for the sales range from 30% to 34%.

In selecting an appropriate EGIM, consideration must be given to the operating expense ratio estimated for the subject. Based on the income and expenses estimated for the subject property in the Income Approach, the subject’s operating expense ratio is calculated at 43%. The subject’s expense ratio is above the high end of the range of ratios exhibited by the sales data, indicating that an appropriate EGIM is below the low end of the comparable range. In consideration of the preceding, an EGIM of 10.5 is concluded.

Based on the effective gross income of $2,986,855 estimated for the subject property, a value indication of $31,400,000 (rounded) is concluded.

$2,986,855 x 10.5 = $31,361,978 or $31,400,000, rounded

CONCLUSION: The noted value indicator utilizing the sales price per unit and EGIM methods is $30,700,000 and $31,400,000 respectively. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when concluding to a final value via the Sales Comparison Approach of $31,000,000.

Mountain View Apartments
San Dimas, California December 8, 2006
Page 38

As such, the Market Value of the subject property’s Fee Simple Interest via the Sales Comparison Approach is therefore estimated at:

Value via the Sales Comparison Approach           $31,000,000

RECONCILIATION

Cost Approach		N/A
Income Capitalization Approach	$	30,800,000
Sales Comparison Approach	$	31,000,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE           $30,800,000

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

ADDENDA

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

SUBJECT PHOTOGRAPHS

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

VIEW OF PROPERTY FROM EAST BONITA AVENUE

VIEW OF MANAGEMENT/LEASING OFFICE

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

VIEW OF COMMON INTERIOR GROUNDS

VIEW OF TYPICAL BUILDING ELEVATION

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

VIEW OF POOL AREA

COVERED PARKING

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

VIEW OF PLAYGROUND

VIEW OF FITNESS CENTER

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE #1

COMPARABLE #2

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE #3

COMPARABLE #4

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE #5

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE SALES

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #1

Name:	The Sedona On Laurel
Location:	5717 Laurel Canyon
	North Hollywood, CA
Date of Sale:	July 18, 2006
Grantor:	Plaza 6000 Partners LP (et al)
Grantee:	Mansfield Circle LLC (et al)
Consideration:	$9,900,000
Terms:	Cash to seller
Price/Unit:	$183,333
Price/SF:	$204.30

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #1 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	9,900,000
Net Rentable Area (SF):		48,457
Number of Units:		54
Average Unit Size (SF):		897
Occupancy		95	%
Year Built		1986
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	867,825		$	16,071		$	17.91
Expenses (including reserves)		(292,200	)		(5,411	)		(6.03	)
Net Operating Income	$	575,625		$	10,660		$	11.88
EGIM		11.4
OER (including reserves)		34	%
OAR		5.8	%

Comments: Three-story wood frame construction in average condition at time of sale.

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #2

Name:	Del Prado Apartments
Location:	9150 Florence
	Downey, CA
Date of Sale:	June 2, 2006
Grantor:	William M Grant Trust
Grantee:	MC Del Prado LLC (et al )
Consideration:	$9,425,000
Terms:	Cash to seller
Price/Unit:	$168,304
Price/SF:	$117.80

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #2 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	9,425,000
Net Rentable Area (SF):		80,006
Number of Units:		56
Average Unit Size (SF):		1,429
Occupancy		97	%
Year Built		1969
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	824,494		$	14,723		$	10.31
Expenses (including reserves)		(269,251	)		(4,808	)		(3.37	)
Net Operating Income	$	555,243		$	9,915		$	6.94
EGIM		11.4
OER (including reserves)		33	%
OAR		5.9	%

Comments: Three-story wood frame construction.. Property was in average condition at the time of sale.

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #3

Name:	Montego Palms
Location:	385 S. Catalina Avenue
	Pasadena, CA
Date of Sale:	June 2, 2006
Grantor:	Montego Palms Apartments LP
Grantee:	PPC Montego Palms LLC
Consideration:	$18,700,000
Terms:	Cash to seller
Price/Unit:	$222,619
Price/SF:	$224.48

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #3 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	18,700,000
Net Rentable Area (SF):		83,304
Number of Units:		84
Average Unit Size (SF):		992
Occupancy		98	%
Year Built		1973
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,478,056		$	17,596		$	17.74
Expenses (including reserves)		(448,439	)		(5,339	)		(5.38	)
Net Operating Income	$	1,029,617		$	12,257		$	12.36
EGIM		12.7
OER (including reserves)		30	%
OAR		5.5	%

Comments: Three-story wood frame construction. Property was in average condition at the time of sale.

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #4

Name:	Woodbridge
Location:	1101 Sepulveda Boulevard
	Torrance, CA
Date of Sale:	August 1, 2005
Grantor:	Fairfield Woodbridge LP
Grantee:	Pacifica Woodbridge LLC
Consideration:	$42,800,000
Terms:	Cash to seller
Price/Unit:	$200,000
Price/SF:	$222.81

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #4 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	42,800,000
Net Rentable Area (SF):		192,094
Number of Units:		214
Average Unit Size (SF):		898
Occupancy		95	%
Year Built		1973
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	3,616,599		$	16,900		$	18.83
Expenses (including reserves)		(1,133,969	)		(5,299	)		(5.91	)
Net Operating Income	$	2,482,630		$	11,601		$	12.92
EGIM		11.8
OER (including reserves)		31	%
OAR		5.8	%

Comments: Two-story wood frame construction in average condition at time of sale.

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #5

Name:	Chateau Toluca I
Location:	4524 N. Clybourn
	Burbank, CA
Date of Sale:	May 12, 2005
Grantor:	CTF3-Burbank LLC
Grantee:	Chateau Toluca Apartments 110 LLC
Consideration:	$23,700,000
Terms:	Cash to seller
Price/Unit:	$215,455
Price/SF:	$214.35

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

Improved Sale #5 (Continued)

Economic Data:

Cash Equivalent Sale Price:	$	23,700,000
Net Rentable Area (SF):		110,566
Number of Units:		110
Average Unit Size (SF):		1,005
Occupancy		95	%
Year Built		1974
	Pro Forma			$/Unit			$/SF
Effective Gross Income	$	1,773,495		$	16,123		$	16.04
Expenses (including reserves)		(609,180	)		(5,538	)		(5.51	)
Net Operating Income	$	1,164,315		$	10,585		$	10.53
EGIM		13.4
OER (including reserves)		34	%
OAR		4.9	%

Comments: Three-story wood frame construction. Property was in average condition at the time of sale.

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

REGIONAL LOCATION MAP

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

NEIGHBORHOOD MAP

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE RENTALS MAP

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

COMPARABLE SALES MAP

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

QUALIFICATIONS

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

WILLIAM L. CORBIN, MAI
SENIOR MANAGING DIRECTOR

WILLIAM CORBIN, MAI is Executive Vice President and manager of the Western Regional Office of KTR Valuation & Consulting Services, LLC, located at 1801 Century Park East, Suite 2210, Los Angeles, California 90067. His direct telephone number is 310/ 203-0699

Education

University of California at Los Angeles, 1977

Bachelor of Arts
Major in Economics

University of Southern California, 1980

Master of Business Administration
Concentration in Real Estate and Finance

Designations

MAI Member — Appraisal Institute

Licenses

California Certified General Real Estate Appraiser
Arizona Certified General Real Estate Appraiser

Affiliations

     National Council of Real Estate Investment Fiduciaries (NCREIF) designated representative — Valuation sub-committee co-chairperson for Standardized Commercial Appraisal Report

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

WILLIAM L. CORBIN, MAI

Experience

Mr. Corbin began his career with an intensive education in real estate market analysis as a consultant with Robert Charles Lesser & Co. from 1980 to 1983. With RCLCo, he performed over 75 market supply and demand, economic feasibility, and strategic planning assignments for prominent regional and national clients. During this very active construction period, nationally, Mr. Corbin had the opportunity to visit and analyze commercial real estate market conditions is over 20 major metropolitan areas in the Western and Central U.S.

As a mortgage banker from 1983 to 1992, Mr. Corbin arranged a wide variety of financing structures with institutional lenders and equity investors, including permanent loans, construction loans, and joint ventures. In total with George Smith Financial Services/Grubb & Ellis and Center Financial Group, he worked with over 90 institutions and closed over 150 transactions totaling in excess of $700,000,000.

As an appraiser, Mr. Corbin has performed numerous current value narrative appraisals for national and regional institutional lenders and investors. His previous experience in commercial real estate finance gives him particular insight to the capital and investment markets and their impact on institutional real estate activity and values. He has performed a wide variety of appraisals of warehouse distribution buildings, industrial and business parks, office buildings, shopping centers, and apartments. He worked with Landauer Associates from 1992 to 1995, managing the Aetna Realty Investors account for western region property appraisals.

Currently with KTR ten years, Mr. Corbin is responsible for managing the Los Angeles regional office, developing and managing institutional accounts, as well as performing direct valuation work for those clients. He also heads KTR’s national pension fund valuation practice and is the firm’s designated representative to NCREIF, a national organization of pension fund advisors that creates and implements operational policy standards for the industry. Mr. Corbin is currently the chairperson for NCREIF’s valuation sub-committee that is contributing to developing a standardized commercial appraisal report in conjunction with the Appraisal Institute that will become the valuation industry standard.

In addition to professional experience, Mr. Corbin has served as a real estate course instructor and conference collaborator for UCLA Extension

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

WILLIAM L. CORBIN, MAI

Following is a list of representative clients Mr. Corbin has performed services for:

Clients — As Appraiser and Consultant
Aetna Realty Investors, Inc.	Massachusetts Mutual Life
Bechtel Corporation	McCullough Oil Properties
CALTRANS	Mobil Land Development
Catellus Corp.	Chevron Land Development
Philips, North America	Home Savings of America
KOAR Hotel Group	Safeway Stores
Copley Institutional Realty	Santa Anita Realty
Estate of James Campbell	Santa Fe Land Improvement Co.
Franklin Properties, Inc.	Taft Broadcasting Co.
Triton Energy Corp	Comerica Bank
Union Oil/Moreland Development	Trammell Crow Company
Kaiser Aluminum Corp.	Bank of New York
Lockheed Air Terminal, Inc	Majestic Realty
Hong Kong and Shanghai Bank Corp	Canadian Imperial Bank of Commerce
PNC Bank	Sakura Bank
CALSTRS	Newfield Enterprises
Heller Financial	J. P. Morgan Mortgage Capital
Chase Commercial Mortgage Banking	Lend Lease Mortgage Capital
Daiwa Securities America	Whitehall Fund II
Lennar Partners	AMB Institutional Realty Advisors
SSR Realty Advisors	TA Associates Realty
Douglas, Emmett Realty Advisors	LACERA
Dresdner Bank	Henderson Global Investors
Prudential Mortgage Capital	Prudential Insurance Company of America
TIAA-CREF	INVESCO
Principal Real Estate Investors	Cornerstone Real Estate Advisers
RREEF	Deutsche Bank
Eurohypo Bank
Clients — As Mortgage Banker
AEtna Life & Casualty	AFL-CIO Housing Trust
BALCOR	Bank of America
Citicorp REIG	Creative Artists Agency
Forest City Properties	General Electric Credit
Heller Financial Services	Hollywood Center Studios
Home Savings of America	Industrial Bank of Japan
MetroBank	Massachusetts Mutual Life
Principal Mutual Life	Security Pacific National Bank
Societe Generale	Textron Financial Services
U.S. Bancorp	Union Bank
William Morris Agency	DeAnza Group, Inc.
IBEW Pension Fund	Nationwide Life

STEVEN J. GOLDBERG, MAI, CCIM

Mountain View Apartments	December 8, 2006
San Dimas, California	Addenda

SENIOR MANAGING DIRECTOR

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Valuation & Consulting Services, LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

EX-99.(C)(20)

APPRAISAL
OF
PATHFINDER VILLAGE APARTMENTS
39800 FREMONT BOULEVARD
FREMONT, CALIFORNIA

KTR JOB NO. 7-7-06012E

Ms. Martha Long	December 8, 2006
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, SC 29601

Re: Pathfinder Village Apartments
39800 Fremont Boulevard
Fremont, California

Dear Ms. Long:

At your request, KTR Valuation & Consulting Services LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of November 16, 2006. The date of value corresponds to the date the subject property was most recently inspected by the appraiser.

The subject property consists of an 8.13-acre tract of land improved with a 246-unit garden-style apartment complex known as the Pathfinder Village Apartments. Construction of the improvements was reportedly completed in 1973. The structural improvements were observed to be in average physical condition and consist of two-and three-story wood frame residential buildings with stucco veneer and wood trim exterior walls and pitched roofs with asphalt shingle cover.

Amenities common to all units include electric kitchen appliances, patio/balcony, microwave, and mini-blinds. Other apartment features include disability access, ceiling fan(s), dishwasher, and oversized closets. Community amities include clubhouse, fitness center, covered parking, two laundry facilities, public transportation and swimming pool. Pathfinder Village Apartments contain 235,780 rentable square feet, which suggests an average unit size of 958 square feet. The subject offers only two and three-bedroom floor plans.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

5477 Glen Lakes Drive, Suite 202, Dallas, TX 75231
tel 214.363.3373 • fax 214.369.4388
www.firstam.com

Ms. Martha Long
VMS National Properties JV
December 8, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 16, 2006, is:

THIRTY-FOUR MILLION SEVEN HUNDRED THOUSAND DOLLARS
($34,700,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director
By:	Jackson L. Aills
	Appraiser

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page i

CERTIFICATE OF VALUE

We, William L. Corbin, MAI, Steven J. Goldberg, MAI, and Jackson L. Aills, certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, are our personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Jackson L. Aills made a personal a personal inspection of the property that is the subject of this appraisal. Neither William L. Corbin nor Steven J. Goldberg inspected the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, William L. Corbin, MAI and Steven J. Goldberg, MAI, have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page ii

As of the date of this appraisal, William L, Corbin MAI is currently certified with the State of California Office of Real Estate Appraisers and is licensed as a Certified General Real Estate Appraiser (AG025737) until February 27, 2007.

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director
By:	Jackson L. Aills
	Appraiser

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page iii

BASIC ASSUMPTION AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page iv

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page v

SUBJECT PROPERTY PHOTOGRAPH

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page vi

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certificate of Value		i
Basic Assumptions and Limiting Conditions	iii
Subject Photograph		v
Table of Contents	vi
Executive Summary		1
Introduction and Premises of the Appraisal		2
Regional Overview		4
Neighborhood Overview		14
Site Analysis		16
Real Estate Taxes		17
Zoning		18
Description of Improvements		19
Apartment Market Overview		21
Economic Rent Analysis		24
Highest and Best Use		32
Valuation Procedure		33
Income Capitalization Approach		34
Sales Comparison Approach		39
Reconciliation and Final Value Conclusion		45

ADDENDA

Subject Photographs
Comparable Rental Photographs
Comparable Sale Photographs
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map Qualifications

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 1

EXECUTIVE SUMMARY

Property:	Pathfinder Village Apartments
Location:	39800 Fremont Boulevard, Fremont, California
Assessor’s Parcel ID No:	525-850-2-11 — Alameda County Assessor’s Office
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 16, 2006
Date of Report:	December 8, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of an 8.13-acre tract of land improved with a 246-unit garden-style apartment complex known as the Pathfinder Village Apartments. Construction of the improvements was reportedly completed in 1973. Pathfinder Village Apartments contains 235,780 rentable square feet, which suggests an average unit size of 958 square feet.
Location:	The subject property is located in the central sector of the City of Fremont, along the north side of Fremont Boulevard, approximately 525 feet west of Stevenson Boulevard.
Zoning:	The subject site is zoned R-3 — Multi-Family Residence District by the City of Fremont. This is a medium density multifamily district located in certain areas close to the center of the city and various outlying areas.
Flood Zone:	According to the Federal Emergency Management Agency, the property is within Zone X, outside any special Flood Hazard Areas, according to FEMA Map No. 065028-0030C, Dated 02/09/2000.
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months
Final Estimate of Market Value, by Approach
Cost Approach:	N/A
Sales Comparison Approach:	$34,900,000
Income Approach:	$34,700,000
Final Estimate of Market Value:	$34,700,000

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 2

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 16, 2006. It is for the internal use of AIMCO to facilitate asset evaluation and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:
	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation) ”.
Marketing Period	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006 indicates that apartment properties in the national market have an average marketing time of 5.58 months, up 2.6% from the average of 5.44 months reported one year ago. This estimate seems reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History	Property tax records indicate that VMS National Properties Joint Venture is the current owner of record. The partnership’s managing general partner,

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 3

	MAERIL, is a subsidiary of AIMCO. MAERIL provides the company with management and administrative services.
	No conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.
Most Likely Buyer	National and regional investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1.	buyer and seller are typically motivated;
2.	both parties are well-informed or well advised, and acting in what they consider their best interests;
3.	a reasonable time is allowed for exposure in the open market;
4.	payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5.	the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. ”

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 4

REGIONAL OVERVIEW

Overview	The subject property is located in the City of Fremont, Alameda County within the greater San Francisco Bay Area. The San Francisco Bay Area, referred to locally as the Bay Area, is a geographically diverse metropolitan area that surrounds San Francisco Bay in northern California. Home to almost eight million people, it is composed of cities, towns, villages, military bases, airports, and associated regional, state, and national parks sprawled over nine counties and connected by a massive network of roads, highways, railroads, and commuter rail.
	The Bay Area is atypical in that its population is distributed across several regional urban and suburban centers. San Francisco was until recently the largest city in the region (it was surpassed by San Jose in the 1990 census) and remains the traditional and cultural center. The metropolitan area comprising the city of San Francisco together with Oakland and San Jose is the fifth-largest metropolitan area in the United States, after New York, Los Angeles, Chicago and Washington, D.C.-Baltimore.
	The San Francisco Bay Area consists of the nine counties including San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Solano, Napa, Sonoma, and Marin, situated on the perimeter of San Francisco Bay and San Pablo Bay. San Francisco is in the geographical and cultural center of the region. It is surrounded by Marin, Napa, Sonoma and Solano Counties to the north; Alameda and Contra Costa Counties to the east; and San Mateo and Santa Clara Counties to the south. The large land area and highly diversified physical features of the Bay Area support a wide range of land uses. Land uses range from large agricultural areas to major urban centers, and environments range from mountain to marine.
	The San Francisco Bay Area is divided in to the following sub-regions.
	San Francisco — The City and County of San Francisco is generally placed in a category by itself geographically, mentally, and culturally. It is separated by water from the north, west and east, and by a county line from its neighbor cities to the south. San Francisco serves as the cultural and financial center of the region, and once was the population and economic center. It remains the Bay Area’s center of attraction, and it is the heart of its nightlife.
	East Bay — The eastern side of the bay, dominated by the city of Oakland but also including Alameda, Berkeley, Fremont, Livermore, Hayward and several small cities, is known locally as the East Bay. The East Bay is split into two regions, the inner East Bay, which sits on the Bay coastline, and the outer East Bay, consisting of inland valleys separated from the inner East Bay by hills and mountains. The inner East Bay consists of Oakland, Hayward, Fremont, Berkeley,

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 5

and smaller suburbs surrounding or surrounded by these four major cities, such as Emeryville, San Leandro, and Richmond. The inner East Bay is more urban, more densely populated, has a much older building stock (built before World War II) and a more ethnically diverse population. Oakland hosts the region’s largest seaport and professional sports franchises in basketball, football, and baseball. As with many inner urban areas the Inner East Bay also features a high accumulation of crime as well as socio-economic problems. According to the FBI Uniformed Crime Reports, more than 50% of all homicides in the Bay Area in 2002 occurred within the city limits of Oakland and Richmond.

The outer East Bay consists of the cities of Walnut Creek, Concord, and Pleasant Hill, to the north (also referred as Central Contra Costa County) and the cities of Dublin, Pleasanton, Livermore, Danville, San Ramon to the south (sometimes referred to as the Livermore-Amador Valley or the Tri-Valley), as well as other smaller towns, such as Alamo and Orinda. They are connected to the inner East Bay by BART and by highways and the Caldecott Tunnel. The outer East Bay is mostly suburban to rural and was mostly built after World War II.

South Bay — The communities along the southern edge of the Bay are known as the South Bay, Santa Clara Valley, and Silicon Valley, although some Peninsula and East Bay towns are sometimes included in the latter. It includes the city of San Jose, and its smaller neighbors including Gilroy and the high-tech hubs of Santa Clara, Cupertino, Palo Alto and Sunnyvale, as well as many other suburbs.

Peninsula — The area between the South Bay and the City and County of San Francisco is known as the San Francisco Peninsula, locally just as The Peninsula. This area consists of a series of small cities and suburban communities along the Bay such as Palo Alto and Stanford University, Mountain View, Daly City, San Mateo, and Foster City, as well as various towns along the Pacific coast, such as Pacifica and Half Moon Bay.

North Bay — The region north of the Golden Gate Bridge is known locally as the North Bay. This area consists of Marin County and extends northward into Sonoma and Napa Counties and eastward to Solano County. With some exceptions, this region is quite affluent, and is generally the least urbanized part of the Bay Area, with many areas of undeveloped park and farmland. It is the only section of the Bay Area that is not served by a commuter rail transit service, though Sonoma-Marin service has entered the planning phase. The lack of transportation services is mainly because the lack of population mass in the North Bay, and the fact that it is separated completely from the rest of the Bay Area by water, the only access points being the Golden Gate Bridge leading to San Francisco, the Richmond-San Rafael and Carquinez Bridges leading to Richmond, and the Benicia Bridge leading to Concord.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 6

Geography	The large land area and highly diversified physical features of the Bay Area compose one of the most varied environments in the United States, and support a wide range of land uses and living environments. The dominant influence of the area’s climate is the San Francisco Bay, which moderates the temperatures in the coastal areas, while inland climates that are further removed from the Bay’s influence experience a wide range of temperatures. Rainfall averages 25 inches per year and generally falls from November through March. January is the coldest month and the average daily high temperature is 55 degrees Fahrenheit; the average daily low temperature is 45 degrees Fahrenheit. September, one of the warmest months, averages a daily high of 68 degrees Fahrenheit.
	The most powerful geographical influence is exerted by the fault zones that lace the region. In 1989, the Loma Prieta earthquake caused heavy damage along the Bay Area Peninsula as well as the East Bay. This earthquake was the most serious one to occur since 1906. Most infrastructure damaged by the earthquake has been repaired. Other physical damage, including collapsed and unsafe buildings, has generally also been repaired. Despite the physical damage caused by the earthquake, the economy of the region suffered no significant long-term damage.
Transportation	The Bay Area is served by many public transportation systems, including three international airports (SFO, OAK, SJC), six overlapping bus transit agencies, four rapid transit and regional rail systems including BART, and multiple public ferry services.
	The freeway and highway system is very extensive; however, many freeways are heavily congested during rush hour, especially the trans-bay bridges.
	The Bay Area’s transportation infrastructure includes 1,500 miles of highway, eight toll bridges, 17,000 miles of local streets, six public ports, five passenger ferries, and five commercial airports. Transportation in the Bay Area is diversified because of the trend toward decentralized work places. More and more people are commuting longer distances to work, putting a heavy burden on the region’s transportation network.
	Air transportation is available through a number of airports in the Bay Area. San Francisco International Airport, located in San Mateo County, is one of the most active commercial airports in the world and it is served by over 62 airlines. Furthermore, a two billion-dollar airport expansion was completed which expanded international travel capabilities. Additionally, Oakland International Airport in Alameda County, and Mineta San Jose International Airport in Santa Clara County offer facilities for international travel, air taxi, charter and cargo.
	The Bay Area Rapid Transit system (BART), a high-speed rail system with over 75 miles of track, is a major commuter transportation system

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 7

	which links stations in Alameda, Contra Costa, San Mateo and San Francisco counties. BART has been extended to the San Francisco International Airport, which coincided with the aforementioned airport expansion. CalTrans operates commuter trains that travel from San Jose to San Francisco. There are freight rail lines in many Bay Area communities.
	Historically, ongoing efforts to improve the roads and public transit systems in the Bay Area have lagged behind growth in the population. Traffic congestion, considered a major problem in the Bay Area, makes close in, conveniently accessed locations particularly desirable.
Governmental Forces	The Bay Area is comprised of nine separate counties. Each county has its own government, with incorporated cities within each county also having their own government. Between the city and county levels, interaction is limited. On a regional level, this concept is magnified, with limited inter county planning. Local city and county governments within the region implement land use policies through the use of zoning laws and general plans. Support services, such as transportation, schools, health care, police, and fire protection are provided by local governments.
	California’s land use and growth controls are among the most stringent in the United States. These local land use controls include zoning, growth management systems, subdivision regulations, development fees and environmental restrictions. These policies raise the cost and reduce the volume of land development, especially in coastal metropolitan areas.
Education	Within the Bay Area there are over 80 public and private colleges and universities; among them are over 30 community colleges, four California State University campuses, and two University of California campuses.
Population	Population trends affect employment, retail spending, housing, bank deposits, and many other essential demand parameters analyzed in determining real estate productivity. Population growth, stability, or decline is a strong indicator of real estate viability within an area.
	The mild climate of the Bay Area has played an important role in development, and contributes to a desirable living environment. During the 1960s and 1970s, the regional population grew at an average annualized rate of 1.9%. During the 1980s, the population grew by approximately 1.4% per year.
	Population growth during the period from 2000 through 2015 is projected at approximately 0.9% annually. The slowing in the rate of population growth reflects the diminishing supply of available land and the high cost of housing in the area.
	The following table depicts the historical population growth trends of the

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 8

nine counties comprising the greater San Francisco Bay Area illustrating the growth issues discussed.

BAY AREA HISTORICAL POPULATION GROWTH

County	2000		2001		2002		2003		2004		2005		2006
Alameda		1,438,264		1,462,900		1,484,700		1,487,700		1,496,968		1,500,228		1,510,303
Contra Costa		946,258		965,100		980,900		992,700		1,008,944		1,019,101		1,029,377
Marin		246,334		248,100		248,500		249,800		251,330		251,820		253,341
Napa		124,094		126,600		128,100		130,100		131,837		132,990		134,444
San Francisco		775,004		785,700		789,100		789,700		793,403		792,952		798,680
San Mateo		706,274		712,400		714,400		709,200		718,993		719,655		724,104
Santa Clara		1,679,243		1,697,800		1,716,800		1,719,500		1,740,699		1,752,653		1,773,258
Solano		391,666		398,600		405,600		412,200		417,447		420,307		422,848
Sonoma		457,316		464,300		468,600		469,500		474,993		477,697		479,929
Total Population		6,766,453		6,863,501		6,938,702		6,962,403		7,036,618		7,069,408		7,128,290

Source: California Department of Finance, dates as of Jan. 1

	San Francisco is the focal point of the San Francisco Bay Area. With an estimated population of over seven million, the San Jose-San Francisco-Oakland Combined Statistical Area is the sixth-largest consolidated metropolitan area in the United States. The highest rates of growth are projected in Solano and Santa Clara counties. Santa Clara County is the Bay Area Center for the technology industry. While population growth is expected to be substantial, it will still occur at a rate that is far slower than the growth in Southern California or many other portions of the state. The Bay Area has some of the highest housing costs in the nation. When the comparison is made between household income and housing costs, the Bay Area remains one of the least affordable areas in the nation.
Growth Controls	Further exacerbating the limited supply of new construction are political constraints based on the Bay Area’s public opinion favoring anti-growth. Municipalities in the Bay Area have enacted strict growth controls in response to loosely controlled development from the 1950s through the 1970s. Although the City of San Francisco is singled out for its actions, the region’s history of restrictions dates from early rent control laws passed by the City of Berkeley.
	The City of San Francisco leads the anti-growth campaign as witnessed by the 1984 voter approved Downtown Plan, and subsequent Proposition “M”. Along with growth controls and design approval, the Downtown Plan established priorities for land use regarding preservation of retailing, neighborhood character, cultural and ethnic diversity, affordable housing, mass transit, parking, enhancement of a diverse economic base, preparedness for earthquakes, landmarks, historic buildings, parks and open space.
	Since 1997, other communities, including Walnut Creek, Concord and Pleasant Hill in Contra Costa County, have adopted growth controls to protect open space and curb development. Almost all municipalities impose impact fees on new construction, such as office-housing linkage

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 9

	fees, traffic and public benefit fees, such as for childcare. Communities have financed infrastructure through assessment districts. While these assessments strengthen communities’ fiscal condition, they also add to occupancy costs and the cost of holding land.
	Such legislated impediments to growth benefit existing owners, but the long run effects of strict controls are debatable. Severe long-term real estate supply and demand imbalances can force occupancy costs to levels that negatively impact business growth and diminish the availability of affordable labor; again suggesting accelerated growth in outlying Bay Area communities.
Economic	Historically, San Francisco has been the financial and business center of the western United States. Beginning in late-1994 and early-1995, the strengthening high technology and computer-related industries located in the southern Bay Area began to lead the state out of its deep recession. In the second half of the 1990s, the local economy was driven by the growth in technology, particularly Internet, software, and other computer-related technology ventures. The technological advances during the mid- to late- 1990s, coupled with a strong stock market and nearly limitless availability of capital provided an environment for surging employment growth, real estate values, and overall prosperity in the region. The explosion of the so-called dot.com industry, funded primarily from venture capital, fueled an economic boom in Bay Area in the late 1990’s and early 2000 of unprecedented proportion. As a result, every aspect of the real estate market experienced huge gains.
	Commercial and industrial vacancy rates became almost non-existent while lease rates doubled in some instances during this period. While sale prices never matched the increase in rents, there was significant appreciation of commercial and industrial property sales prices. Apartment availability also became extremely tight with rents climbing 30% to 40%. Home prices surged as well, appreciation was in the neighborhood of 25% to 35% in this short time period. During this time a new market phenomenon also sprung out of the disparity between demand and supply of homes. Realtors began the practice of listing prices slightly below their market values to entice bidding wars. It thus became the accepted market practice to bid over the listing price, often substantially above the listing price.
	In March 2001 the tech-heavy NASDAQ declined due to concerns of over-inflated stock prices as negative reports about company profitability and news about declining demand for computer related goods and services surfaced. The Dow Jones quickly followed and entire stock market, including non-tech blue-chip stocks, also tumbled. This trend continued further into 2001. As a result of the stock market tumble, both the national and local economies contracted. The stock market tumble was compounded by the September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon. The risk of air piracy, attacks on

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 10

	large landmarks, bio-terrorism and other threats to public safety has raised the level of uncertainty in the markets. It has also severely impacted the travel and tourism business, which rely heavily on air travel.
	Technology based companies were particularly impacted by the stock market decline. The Bay Area, which is generally regarded as being top-heavy in the technology sector, suffered considerably. Many of the newer and more financially sensitive companies went out of business, while the larger and more established companies, such as Cisco Systems, Hewlett-Packard and Oracle, had significant layoffs in attempt to weather the storm. Unemployment rates have been on a declining trend since 2002.
	Recent information regarding national and local economic recoveries indicates that a recovery started to take place in 2004, and is continuing in 2006.
Income and Spending	The San Francisco Bay Area represents over one quarter of the California market and over 3% of the national market in terms of income and spending, according to the CCSCE. The Bay Area is the wealthiest region in the nation of comparable size. In 2000, per capita income in the region was 50% above the national average and average household income was 65% above the national average and both will continue to grow faster than the national average. The region is projected to remain the nation’s wealthiest area of more than one million people throughout the next decade.
Metropolitan Division	The Office of Management and Budget (OMB) has produced a formal definition of metropolitan areas. These are referred to as “Metropolitan Statistical Areas” (MSAs) and “Combined Statistical Areas.” As of June 2003, there is now an additional classification, that of a “Metropolitan Division.” The term metropolitan division is used to refer to a county or group of closely-tied contiguous counties that serve as a distinct employment region within a metropolitan statistical area that has a population core of at least 2.5 million. While a metropolitan division is a subdivision of a larger metropolitan statistical area, it often functions as a distinct social, economic, and cultural area within the larger region.
	San Francisco-Oakland-Fremont Metropolitan Area (MA) is comprised of the San Francisco-Oakland-Fremont and San Francisco-San Mateo-Redwood City Metropolitan Divisions (MD). As of July 1, 2005 the San Francisco-Oakland-Fremont MA had a population of 4,152,688. The Oakland-Fremont-Hayward MD and San Francisco-San Mateo-Redwood City MD had populations of 2,466,692 and 1,685,996, respectively. The subject in located in the Oakland-Fremont-Hayward Metropolitan Division.
Employment	Employment affects the real estate market since an overall increase in total employment translates into more space utilized for office

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 11

employees, more retail space to sell goods and services, and more money flowing through the area economy. For example, if sectors such as Finance/Insurance/Real Estate, Services and Miscellaneous, and Government, which typically consist of white-collar jobs, experience an increase in employment, this would in turn help support the office and retail real estate markets.

The following table illustrates the historical employment status of the Oakland-Fremont-Hayward Metropolitan Division between 2000 to 2005.

HISTORICAL EMPLOYMENT

	Labor						Unemployment
Year	Force		Employment		Unemployment		Rate
2000		1,269,537		1,224,025		45,512		3.6
2001		1,286,731		1,228,846		57,885		4.5
2002		1,288,021		1,206,191		81,830		6.4
2003		1,272,748		1,188,461		84,287		6.6
2004		1,259,240		1,186,377		72,863		5.8
2005		1,259,709		1,196,203		63,506		5.0

Bureau of Labor Statistics

The follow table depicts the monthly employment status of the Oakland-Fremont-Hayward Metropolitan Division 2006. As illustrated, the area’s unemployment rate continues to improve

HISTORICAL EMPLOYMENT — 2006

	Labor						Unemployment
Period	Force		Employment		Unemployment		Rate
Jan		1,264,108		1,206,272		57,836		4.6
Feb		1,258,874		1,200,609		58,265		4.6
Mar		1,259,172		1,203,595		55,577		4.4
Apr		1,255,252		1,201,481		53,771		4.3
May		1,255,651		1,204,135		51,516		4.1
Jun		1,265,617		1,206,419		59,198		4.7
Jul		1,277,137		1,216,846		60,291		4.7
Aug		1,265,926		1,209,364		56,562		4.5
Sep		1,268,807		1,215,902		52,905		4.2
Oct		1,277,193		1,227,449		49,744		3.9

The unemployment rate in the Oakland-Fremont-Hayward Metropolitan Division (MD) was 3.9 percent in October 2006, down from 4.2 percent in September 2006, and below the year-ago estimate of 4.8 percent. This compares with an unadjusted unemployment rate of 4.2 percent for California and 4.1 percent for the nation during the same period. The unemployment rate was 4.0 percent in Alameda County and 3.8 percent in Contra Costa County.

The following table depicts current employment of the Oakland-Fremont-Hayward MD by sector.

EMPLOYMENT BY SECTOR

Industry	October 2006		% of Total
Natural Resources and Mining		1,200		0.11	%
Construction		83,400		7.87	%
Manufacturing		96,100		9.07	%

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 12

Industry	October 2006		% of Total
Trade, Transportation and Utilities		196,600		18.56	%
Information		29,300		2.77	%
Financial Activities		73,600		6.95	%
Professional and Business Services		155,000		14.63	%
Educational and Health Services		122,000		11.52	%
Leisure and Hospitality		86,300		8.15	%
Other Services		35,700		3.37	%
Government		180,000		16.99	%
TOTAL NONFARM		1,059,200		100.00	%

	As indicated, the largest employment sector is Trade, Transportation and Utilities with approximately 19% of the work force followed by Professional and Business Services and Educational and Health Services.
Job Growth	The following table is a presentation of historical industry employment within the Oakland-Fremont-Hayward MD.

HISTORICAL EMPLOYMENT BY INDUSTRY
OAKLAND-FREMONT-HAYWARD METROPOLITAN DIVISION

	September		October				% Change			October		October				% Change
Industry	2006		2006		Change		(9/06 to 10/06)			2005		2006		Change		10/05 to 10/06)
Total Jobs		1,060,800		1,063,900		3,100		-0.29	%		1,047,100		1,063,900		16,800		1.29	%
Farm Jobs		1,600		1,500		-100		6.25	%		1,400		1,500		100		12.50	%
Nonfarm Jobs		1,059,200		1,062,400		3,200		-0.30	%		1,045,700		1,062,400		16,700		1.27	%
Natural Resources and Mining		1,200		1,200		0		0.00	%		1,100		1,200		100		8.33	%
Construction		83,400		83,400		0		0.00	%		79,100		83,400		4,300		5.16	%
Manufacturing		96,100		95,800		-300		0.31	%		95,500		95,800		300		0.62	%
Trade, Transportation and Utilities		196,600		197,400		800		-0.41	%		195,700		197,400		1,700		0.46	%
Information		29,300		29,200		-100		0.34	%		29,500		29,200		-300		-0.68	%
Financial Activities		73,600		73,200		-400		0.54	%		71,400		73,200		1,800		2.99	%
Professional and Business Services		155,000		155,100		100		-0.06	%		152,400		155,100		2,700		1.68	%
Educational and Health Services		122,000		123,100		1,100		-0.90	%		120,200		123,100		2,900		1.48	%
Leisure and Hospitality		86,300		85,300		-1,000		1.16	%		83,600		85,300		1,700		3.13	%
Other Services		35,700		35,500		-200		0.56	%		36,000		35,500		-500		-0.84	%
Government		180,000		183,200		3,200		-1.78	%		181,200		183,200		2,000		-0.67	%

Between September 2006 and October 2006, the East Bay grew by 3,100 jobs to reach 1,063,900 jobs. Government posted a net gain of 3,200 jobs, mainly due to a seasonal addition in local public schools (up 2,300 jobs). Educational and health services gained 1,100 jobs, partly from a seasonal increase in private schools (up 500 jobs). Trade, transportation and utilities picked up 800 jobs. Leisure and hospitality lost 1,000 jobs, predominately in accommodation and food services (down 700 jobs).

Between October 2005 and October 2006, industry employment added 16,800 jobs or 1.6 percent. This marks the 29th consecutive month of year-over job gains in the East Bay. Construction reported the 31st month of year-over gains by adding 4,300 jobs. Specialty trade contractors (up 2,000 jobs) accounted for close to half of the job growth. Educational and health services continued to expand (up 2,900 jobs). Growth in health care (up 1,800 jobs) was a key factor in the improvement. Professional and business services reported its 34th consecutive month of year-over growth by adding 2,700 jobs. Employment services (up 1,800 jobs) accounted for the bulk of the expansion. Government gained 2,000 jobs, largely in local government education (up 1,700 jobs).

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 13

Conclusion	The nine-county San Francisco Bay Area is one of the nation’s most vital economic regions. While San Francisco remains the center of the region, the surrounding counties have developed economic centers of their own. Future projections by ABAG indicate increased growth in population and employment, albeit at a slower rate. Employment growth is expected to occur primarily in the service sector. Locational advantages, outstanding higher educational facilities, and a skilled labor force benefit the Bay Area. However, structural problems including affordable housing, transportation capacity, and water and sewer capacity, along with local slow growth initiatives, could impair the region’s competitive position. However, the economic base is well diversified, and should provide for moderate future growth in the Bay Area.
	The Bay Area’s economy has shifted towards service orientation. Agriculture, construction, and manufacturing have become less dominant while trade, finance, government, and business, professional and other services have grown in prominence. The one notable exception to this trend has been the high technology sector, particularly computer-related, and manufacturing.
	The long term future of California real estate appears good due to anticipated job growth which is expected to generate demand for additional office, industrial, and retail space. The expected increase in population indicates a strengthening housing market and growing retail demand.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 14

NEIGHBORHOOD OVERVIEW

Location:	The subject property is located in the central sector of the City of Fremont, along the north side of Fremont Boulevard approximately 525 feet west of Stevenson Boulevard. The subject’s address is 39800 Fremont Boulevard, Fremont, California.
	Fremont is located in the Silicon Valley just north of San Jose and to the east of the San Francisco Bay, just 50 miles from San Francisco, 30 miles from Oakland and 15 miles from San Jose. Fremont is located within Alameda County.
Access:	Two major freeways provide easy access to the greater San Francisco Bay Area from Fremont. Interstate 880 is located on the western side of Fremont and provides a direct link to San Jose to the south and Oakland to the north. Interstate 680 flanks Fremont on the east and is the major traffic corridor between San Jose and the Tri-Valley area of Livermore, Dublin, and Pleasanton.
	State Highways 84, 92, and 237 also provide access to nearby communities. Highway 84 connects Fremont with the Peninsula communities of Palo Alto, Menlo Park and Mountain View across the Dumbarton Bridge (Fremont is only 15 miles from Palo Alto). Highway 92 connects Interstate 880 and Highway 101 and also connects Fremont with the Peninsula communities of San Mateo, Foster City, and Redwood City across the San Mateo-Hayward Bridge. Highway 237 connects Southern Fremont to the Silicon Valley cities of Milpitas and Mountain View.
	The Bay Area Rapid Transit (BART) provides dependable rapid transit access to much of the Bay Area. BART currently has its southernmost station in central Fremont, near the intersection of Paseo Padre Parkway and Mowry Avenue approximately one mile northwest of the subject property.
	Primary access to the subject property and neighborhood is achieved via Fremont Boulevard. Employment centers are easily accessible from the subject neighborhood due to the presence of regional transportation routes and public mass transit in the area. Traffic flow is well managed along the heavier traveled neighborhood streets with traffic signals at major intersections. Public facilities including schools and medical facilities are in close proximity.
Land Use:	The subject neighborhood is a mature and established commercial and residential district. The area realized much of its growth from the 1970s through the 1980s. Most of the apartments in the area were built in the 1970s. Approximately 95% of the land area is developed with limited land available to accommodate additional development. Multifamily

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 15

	development is prevalent along Fremont Boulevard, Stevenson Boulevard and Paseo Padre Parkway.
	Fremont Boulevard and Paseo Padre Parkway are the primarily commercial corridors through the neighborhood. They are primarily developed with commercial uses including a concentration of freestanding retail and general business buildings and multifamily, all of which benefit from visibility and proximity to the regional transportation routes. The Fremont Hub Shopping Center is located approximately two blocks northwest of the subject at the intersection Fremont Boulevard and Walnut Avenue. Residential uses are located throughout the area along neighborhood roads that feed into the major collector streets. The predominate land use in the neighborhood is residential with supporting commercial uses generally located along the major thoroughfares.
Adjacent Land Uses:	South:                     Multifamily residential
	North:                     Multifamily residential
	East:                       Multifamily residential
	West:                     Multifamily residential
New Construction:	Due to the limited availability of vacant land suitable for development, there has not been a significant amount of new construction in the immediate vicinity of the subject property.
	Most of the development in the area is in the form of re-development of older districts. The re-development of the Centerville and Business Districts is currently in the planning stages to become a pedestrian-scale, mixed-use, lifestyle center serving the East Bay.
	Centerville is one of five communities incorporated in 1956 to form the City of Fremont. The 302-acre Centerville Redevelopment Project Area is located in the northern part of Fremont and is within one of Fremont’s four historic communities. The Project Area boundaries are roughly Monroe Avenue to the east, Glenmoor Drive to the south, Alder Avenue to the west, and Paseo Padre Parkway to the north. The restoration of the Centerville Depot, streetscape and facade improvements, and the Centerville Bill Ball Plaza are key projects. Undergrounding of utilities is underway and will be completed by the end of 2006. Road widening will begin in the Spring of 2007.
	Other new projects include the Village Phase II, a 168-unit in-fill residential project that will provide affordable housing to all levels of income earners.
Change in Current Use	The neighborhood can be classified as being in the growth stage of its life cycle. As a result of its good location in the San Francisco East Bay, growth in the area is anticipated to continue, in the form of new development on vacant sites and redevelopment of underutilized sites.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 16

Conclusion The property is located in the central sector of Fremont within the San Francisco East Bay. The area is afforded with good accessible to other areas of San Francisco Bay Area and employment centers. As a result of its good location, the area has proven to be a desirable residential and commercial location. The area’s accessibility to employment centers has enhanced the desirability of the neighborhood as a residential location.

SITE ANALYSIS

Location	The site is located along the north side of Fremont Boulevard, approximately 525 feet west of Stevenson Boulevard.
Size	The site is irregular in shape and consists of a total land area of 8.13 acres.
Excess Land	None
Topography	Generally level and on grade with the bounding street
Site Improvements	The 8.13-acre site is improved with a 246-unit garden-style apartment community known as the Pathfinder Village Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	Fremont Boulevard provides primary access to the subject via curb cuts from a frontage road running along the north side of Fremont Boulevard. Access is also provided via a curb-cut along the east side Birdwell Street and the south side of Leslie Street — two secondary thoroughfares bordering the subject to the west and north. Fremont Boulevard is a six—lane, bi-directional commercial corridor which is generally oriented in a northwest/southeast direction.
Desirability of Location	Average
Access to Major Arteries	Good
Access to Local Arteries	Good
Curb Appeal	Average
Ingress/Egress	Average — Adequate road frontage along Fremont Boulevard.
Visibility from Road	Average
Public Transportation	Good
Neighborhood Appearance	Average
Flood Zone Map	According to the Federal Emergency Management Agency, the property is within Zone X, outside any special Flood Hazard Areas (Map No. 065028-0030C, Dated 02/09/2000.
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical access and utility easements, visual

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 17

	observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions do not exist. Therefore, it is recommended that a current title policy be obtained for the subject property which would disclose any land use restrictions which may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Police and Fire Protection	Provided to the site by the City of Fremont
Conclusion	The subject represents a desirable site for multifamily development.

REAL ESTATE TAXES

Assessor’s Parcel No:	525-850-2-11 — Alameda County Assessor’s Office
Ad ValoremTax rate	Composite Rate 1.44 per $100 of assessed value (2006-2007)
Equalization Rate	100%
Payment Due Date	Taxes are payable in two equal installments, which become delinquent after December 10 and April 10, respectively.
2006-2007 Assessed Value	$17,178,592
Tax Analysis:	The subject property is under the taxing jurisdiction of Alameda County. The Proposition 13 Amendment to the California State Constitution limits the maximum annual tax on real property to one percent of market value plus an additional sum to pay for bonded indebtedness on affected property. Per Proposition 13, properties are only reassessed upon sale or significant improvement. Between these events, the assessed value may be increased by a maximum of 2.0% per year. For the purposes of this report, the assessed value is based on an assumed sale at our concluded market value. Following are the assessed value, tax charges, and effective tax rate from the most recent 2005-2006 Tax Bill from the Alameda County Tax Collector.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 18

REAL ESTATE TAX CALCULATION

Assessor's Market Value	2006/2007			Concluded Value
525-850-2-11	$	17,178,592		$	34,700,000
Assessed Value @		100	%		100	%
	$	17,178,592		$	34,700,000
Composite Rate (per $100 A.V.)		1.44			1.44
Total Taxes	$	247,372		$	499,680
Rounded	$	247,000		$	500,000

Estimated Tax Liability	$499,680, or $500,000 rounded
Conclusion	The Composite Rate includes the published tax rate and the effective tax rate due to special assessments for county and municipal water standby charges. These charges are generally based on lot area rather than assessed value.
	The taxes estimated in our analysis are for the subject property assuming a sale at the current market value. If the subject were to sell, a reassessment at that value would most likely occur, with tax increases limited to two percent annually thereafter until the property is sold again. The consequences of this reassessment have been considered in the appropriate valuation sections.
	In accordance with California’s Proposition 13, our estimate of property taxes reflects the assumption of a fee transfer of the subject property. The stabilized property taxes indicated on the summary chart are based on the concluded value by the direct capitalization analysis.

ZONING

Zoning:	The site is zoned R3 District — Multiple Family Dwellings (Medium Density) by the Fremont. The purpose of this district is to promote and encourage well planned, suitable, and appropriate multiple-family developments within medium, high, and very high density land use classifications.
Permitted Use	A broad range of housing types is allowed including single-family, two-family and multifamily dwellings. Commercial, industrial, office and retail uses are not allowed.
Guidelines	The City’s Zoning Code controls the location, size, and height of structures such as buildings, garages, and fences. The Zoning Code is intended to protect city residents, their homes and businesses from conflicting activities nearby.
	The Official Website for the City of Fremont Municipal Codes Online is http://www.municode.com/resources/gateway.asp?pid=10734&sid=5

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 19

Comments: It appears that the existing improvements represent a use that conforms to local zoning requirements.

DESCRIPTION OF IMPROVEMENTS

The subject improvements consist of a 246-unit garden-style apartment complex known as the Pathfinder Village Apartments. The following offers a description of the improvements.

KTR Site Inspector:	Jackson L. Aills
Date of Inspection:	November 16, 2006
Property Contact:	On-site Manager
Year Built:	1973
Number Units:	246
Configuration/Stories:	Garden-style complex, two and three-story residential structures. There are 28 residential structures and one building containing the clubhouse/leasing office, fitness center and laundry facility. Twenty-one of residential structures include below ground parking.
Net Rentable Area:	235,780 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls:	Stucco and wood trim veneer
Roof:	Pitched with asphalt single covers
Doors and Windows:	Exterior entrance doors are hollow core metal. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Window mounted electric AC units and individual gas heat system.
Plumbing:	Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet and sink and bathtub/shower combinations. Hot water is provided by central gas-fired boilers.
Electrical:	Property is sub-metered for electric and water. Electric and water is paid by the tenant.
Parking and Walkways:	The parking areas and internal roadways are asphalt paved. The streets and parking areas have concrete curbs. Walkways are concrete paved. There is adequate on-site parking provided, including underground parking.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 20

INTERIOR
Walls and Ceilings:	Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over padding in living areas and bedrooms with sheet vinyl in the kitchens and bathroom.
Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and stainless steel sink. Appliances include a combination range/oven, microwave oven with exhaust fan, disposal, dishwasher and refrigerator/freezer.
PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes (1)
Fitness Center:	Yes
Clubroom:	Yes
Tennis Court:	No
On-site Management Office:	Yes
Laundry Room:	Yes (2)
Microwave:	Yes
Compactor:	No
Fireplace:	No
Ceiling Fans:	Yes
Cable TV:	Yes
Balconies/Patios:	Yes
Perimeter Fencing:	Yes/Partial
Access Controlled Entry:	No
Other:	Reportedly, a portion of the clubhouse/leasing office will be converted into a child development center. As of the date of inspection, this has not been completed. Landscaping is typical and includes mature trees and shrubs. Other amenities include a playground.

The following chart illustrates the property’s unit breakdown and size.

PATHFINDER VILLAGE APARTMENTS – UNIT MIX

Unit Type	Mix		Size (SF)		Total Area
2BR/1BA		51		830		42,330
2BR/2BA		47		870		40,890
2BR/2BA		44		900		39,600
3BR/2BA		24		1,040		24,960
3BR/2BA		80		1,100		88,000
Totals/Average		246		958		235,780

It is noted that the subject offers an atypical unit mix with a large amount three-bedroom units (104) and no one-bedroom units.

CONDITION/MAINTENANCE

Overall Condition:	Average
Landscaping:	Average
Parking:	Adequate
Sidewalks/Curbs:	Average

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 21

Walls/Fences:	Average
Refuse Area:	Average
Basement:	N/A
Health Club:	Average
Club Room:	Average
Exterior Walls:	Average
Roofs:	Average
Stairs:	Average
Lobby/Hallways:	N/A
Entry Doors:	Average
Patios/Balconies:	Average
Elevators:	N/A
Apartment Interiors:
Overall:	Average
Kitchen Equipment:	Average
Mechanical Equipment:	Average
Bathroom:	Average
Walls/Ceilings:	Average
Layout:	Average
Light and View Quality:	Average
Cosmetic Repairs:	Our physical inspection revealed that the subject property is in average condition.
Deferred Maintenance:	No material elements of deferred maintenance were noted during the appraiser’s inspection of the property.
Comparability:	Similar to competing properties of the same vintage.
Observed Effective Age:	30 years (similar to the actual age of the improvements)
Economic Life:	50 years (per Marshall Valuation Service Manuel)
Remaining Economic Life:	20 years
General Comments:	Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

APARTMENT MARKET OVERVIEW

The following apartment market analysis is designed to provide the reader an understanding of the Bay Area apartment market and the local submarket within which the subject property competes. The most recent source of data available to the appraisers was the Apartment Market Report for Northern California (3^rd Quarter 2006) published by Hendricks and Partners.

Overview The subject property is situated in the City of Freemont in the “East Bay” area of the greater San Francisco Bay area. Job growth is boosting demand for local apartments. Job growth averaged 2.4% in the third quarter of 2006, which is also its average pace of growth since January of 2006. Employers are adding jobs in every major sector.
Economic opportunity and the generally high quality of life continue to support consistent population growth throughout California. According

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 22

	to the Association of Bay Area Governments, East Bay Population dynamics will follow a similar pattern as prior years: adding over 120,000 new jobs, 500,000 new residents, and nearly 200,000 new households over the next 20 years. Due to a scarcity of developable land and a restrictive permitting process, supply of new housing has failed to keep pace. Only 52% of necessary supply was completed during the 1990’s and will likely remain inadequate in the future.
	While single-family home prices continue to surge in most of the area, especially throughout of Southern California, home prices in Bay Area experienced a mix of increasing and decreasing values. The county’s excellent climate and strong economy, and proximity to several major employment centers throughout the Bay Area should continue to attract in-migration over the long term, and contribute to a continued strong demand for housing.
	The pending redevelopment plans for two former military bases within the East Bay provide an excellent opportunity for long-term growth within the region. Land that was formerly part of the Concord Naval Weapons Station will be transferred to the city of Concord for development. In all, the land totals about a quarter of the current land area of Concord. City leaders are already projecting that the former base area will be home to 33,000 residents and could yield as many as 15,000 new jobs.
	Alameda is seeing similar opportunities develop around the former Alameda Naval Air Station site. Intense redevelopment of that area along Webster Street has led to the addition of new residents and increased revenue for local business. In addition, Oakland is putting a lot of energy into reenergizing its Jack London Square area with upscale residential development, which should end up totaling approximately 10,000 units when complete. The redevelopment and gentrification of areas around the former military bases and the prospect of increased urban amenities has raised local incomes and fueled an influx of high-income residents into local apartment and condominium units.
Supply/Demand	Anchored by improving job growth and the region’s housing crisis, the East Bay is estimated to experience an increase in multi-family demand.
	No new apartment units were built in the third quarter of 2006. New construction totaled a modest 134 apartment units in the second quarter of 2006 and 198 apartment units in the first quarter of 2006. Year-to-date new construction totaled 332 apartment units, which is a significant jump from the 111 new apartment units were built in the first three quarters of 2005. This is an indication that builders have more confidence in future apartment demand.
	According to Hendrick and Partners, 1,265 multifamily (apartment and condo) units were permitted for the third quarter 2006. Permits were issued for 3,685 multifamily units in 2005. 1,065 multifamily units were

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 23

	permitted in the fourth quarter. A large majority of the units permitted were condominiums, but the mix in permitting is definitely shifting towards apartments as some builders are beginning to cancel or scale back condominium projects, due to an uncertain for-sale environment.
	According to Hendrick and Partners, demand totaled 359 apartment units in the third quarter of 2006. Net absorption was influenced by a conversion of rental stock into condos. High home prices kept apartment demand elevated, allowing the limited number of new units to be quickly absorbed into the market. There were a total of 182 net move-outs in 2005.
Vacancy and Rental Rates	As of the 3rd Quarter 2006, the East Bay’s average apartment vacancy rate measured 4.7%, down from 4.9% from the same period 2005. The East Bay’s average apartment vacancy rate was 5.2% and 4.9% for the 1st and 2nd quarters of 2006, respectively. Vacancy levels are anticipated to decline to 4% by year-end 2006.
	Market rents peaked in 2001 and rapidly decreased until flattening out in mid-2004 as a result of the slow recovery of the local economy. Average rent growth for the East Bay region accelerated slightly to 2.4% in the first quarter of 2006 and continues to gain momentum rising 3.2% in the second quarter of 2006. Market rent rates rose 4.2% for the one-year period ended in the third quarter.
	The subject’s South/East Alameda County submarket, reported an average vacancy level of 3.5% for the third quarter 2006, a decrease of 90 basis points from the same period 2005 of 4.4%. Rental rates increased 5.8% for the third quarter 2006. One year earlier the growth rate was 1.6%.
	The average monthly apartment rent for the South/East Alameda County submarket was $1,333 in the third quarter 2006, a $73 increase from the same period 2005 of $1,260.
Investment Market	The East Bay region is a fertile place for ground-up development in the outlying areas, especially around transit centers. A great deal of multifamily investment in both condos and apartments is occurring in northern Alameda County as the city of Oakland clears the way for redevelopment of many previously blighted areas. Condo conversions will continue to be popular in the East Bay as there is relatively little indication that the affordability picture for single-family homes is going to change. Given that, conversions can still represent a good return in spite of rising interest rates.
Micro-Market Overview	The appraisers surveyed five competitive properties in the immediate vicinity of the subject property. These properties are outlined in detail in the forthcoming Economic Rent Analysis section of this report. The occupancy levels reported for these properties range from 94% to 98% as presented in the following chart. The average occupancy of the sampling

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 24

surveyed equates to 97%. Due to high occupancy, concessions are rare. However, a few apartments offer concessions that typically consist of reduced or free rent over a portion of the lease term.

SUMMARY OF COMPETITIVE OCCUPANCY LEVELS

Property Name	Occupancy
Avalon Fremont		98	%
Pentagon		98	%
Treetops		N/A
Stevenson Place		94	%
Briarwood		97	%
Average		97	%

Appeal to Market:	The subject property has a tenant profile similar to other properties of similar vintage in the area. Its presentation, condition, appearance and rental rate structure are all within market parameters. No adverse conditions are evident which would effect its future competitive position.
	The subject’s local market is mature and little desirable land is available to accommodate new apartment development. The subject’s presentation, condition, appearance and rental rate structure are all within market parameters. No adverse conditions are evident which would effect its future competitive position.
Conclusion	The East Bay economy is entering a growth cycle after recovering from the dotcom bust. Apartment properties in the San Francisco East Bay Area have enjoyed increasing market rents and declining vacancies. With very little new inventory added, the overall vacancy factor has moved steadily downward. Rental rate have held steady over the past couple of years, but began to shown signs of improvement beginning the 1st quarter of 2005 and continue to improve. Overall, economic conditions appear to be stabilizing and poised for gradual recovery. This bodes well for apartment market conditions in the longer term. As economic conditions improve, demand for rental housing should follow suit.

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 25

Rent Comparable #1

Name/Address:	Avalon Fremont
	39939 Stevenson Commons
	Fremont, CA 94538
Number of Units:	308
Age:	1992
Description:	Garden-style apartments with two and three-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include air conditioning, balcony, cable ready, dishwasher, fireplace, microwave, oversized closets and washer & dryer in unit. Community features include clubhouse, emergency maintenance, extra storage, fitness center, garage and/or covered parking, gated access, laundry facility, swimming pool and whirlpool/spa,
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		761	$	1,400	$	1.84
1BR/1BA		785	$	1,450	$	1.85
2BR/2BA		1,036	$	1,700	$	1.64
2BR/2BA		1,056	$	1,720	$	1.63
2BR/2BA		1,120	$	1,760	$	1.57
3BR/2BA		1,369	$	2,100	$	1.53
Totals/Average		1,021	$	1,688	$	1.65

Landlord Provides:	Sewer and trash removal
Occupancy	98%
Concessions:	$500 to $1,000 off first month’s rent if a 12 month lease is signed with immediate move in
Comments:	This garden-style apartment complex offers comparable large two and three bedroom units. It is located north of subject near Paseo Padre Parkway. This comparable is superior to the subject property in terms of amenities and physical characteristics.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 26

Rent Comparable #2

Name/Address:	Pentagon Apartments
	37950 Fremont Boulevard
	Fremont, CA 94536
Number of Units:	81
Age:	1965 / Updated
Description:	Garden-style apartments with two and three-story residential buildings. Stucco exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area.
Amenities:	Apartment features include balcony, ceiling fan(s), fireplace, some paid utilities, community features, emergency maintenance, extra storage, fitness center, garage and/or covered parking, laundry facility and swimming pool.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		650	$	920	$	1.42
2BR/1BA		810	$	1,150	$	1.42
2BR/2BA		900	$	1,225	$	1.36
3BR/2BA		1,000	$	1,475	$	1.48
Totals/Average		903	$	1,283	$	1.42

Landlord Provides:	Sewer and trash removal
Occupancy:	98%
Concessions:	None
Comments:	This property is similar to the subject property in terms of location and amenities; although it is older, it is rated as being similar overall.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 27

Rent Comparable #3

Name/Address:	Treetops Apartments
	40001 Fremont Boulevard
	Fremont, CA 94538
Number of Units:	172
Age:	1978
Description:	Garden-style apartments with two and three-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area.
Amenities:	Apartment features include air conditioning, balcony, cable ready, dishwasher and oversized closets. Community features extra storage, garage and/or covered parking, laundry facility, swimming pool, and whirlpool/spa.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		700	$	1,165	$	1.66
1BR/1BA Loft		800	$	1,300	$	1.44
2BR2BA		900	$	1,425	$	1.55
Totals/Average		800	$	1,297	$	1.62

Landlord Provides:	Gas, Hot Water
Occupancy:	N/A — The property is in the initial stages of redevelopment.
Concessions:	None
Comments:	The property is located at the southwest corner of Stevenson Boulevard and Fremont Boulevard. Overall, this comparable is similar to the subject property in terms of amenities, age and condition.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 28

Rent Comparable #4

Address:	Stevenson Place
	4141 Stevenson Boulevard
	Fremont, CA 94538
Number of Units:	200
Age:	1973
Description:	Garden-style apartments with two-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include balcony, cable ready, dishwasher, microwave, some paid utilities and oversized closets. Community features include emergency maintenance, extra storage, fitness center, garage and/or covered parking, high speed internet access, laundry facility, playground, swimming pool and whirlpool/spa.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		520	$	1,045	$	2.01
1BR/1BA		620	$	1,125	$	1.81
1BR/1BA		730	$	1,230	$	1.68
2BR/1.5BA		1,120	$	1,485	$	1.33
2BR/2BA		1,010	$	1,435	$	1.42
Totals/Average		800	$	1,264	$	1.58

Landlord Provides:	Water, sewer and trash removal
Occupancy:	94%
Concessions:	1st month free rent if lease is signed on 1st visit
Comments:	The property is located south of the subject on Stevenson Boulevard, about a 1/2 block south of Fremont Boulevard. This comparable is similar to the subject property in terms of location and physical characterizes; however, it is rated as being slightly inferior in terms of overall appeal.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 29

Rent Comparable #5

Address:	Briarwood at Central Park
	4200 Bay Street
	Fremont, CA
Number of Units:	160
Age:	1979
Description:	Garden-style apartments with two-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include air conditioning, balcony, cable ready, ceiling fan(s), dishwasher and oversized closets. Community features include clubhouse, emergency maintenance, garage/covered parking, high speed internet access, laundry facility and swimming pool
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		600	$	950	$	1.58
1BR/1BA		410	$	830	$	2.02
2BR/1BA		800	$	1,150	$	1.44
2BR/2BA		850	$	1,215	$	1.43
Totals/Average		665	$	1,036	$	1.56

Landlord Provides:	Gas, sewer and trash removal
Occupancy:	97%
Concessions:	None
Comments:	Overall, this comparable is slightly superior to the subject property in terms of age, amenities and overall appeal.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 30

ANALYSIS

The subject property is situated in a good location along Fremont Boulevard with good access to the primary transportation arteries and employment centers. It is competitive with other properties in terms of location, condition, amenities, and unit size. The subject property offers two and three-bedroom floor plans. The following analyzes the comparables with the most similar floor plans in relation to the subject’s floor plans.

Two-Bedroom Rent Pathfinder Village Apartments offers 142 two-bedroom floor plans ranging in size from 830 to 900 square feet. The average quoted rents for these floor plans range from $1,240 to $1,418 per month or $1.49 to $1.58 per square foot. The comparable rents with regard to similar sized two-bedroom apartments are summarized in the chart below.

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		830	$	1,240	$	1.49
Subject		870	$	1,344	$	1.54
Subject		900	$	1,418	$	1.58
Avalon Fremont		1,036		1,700	$	1.64
Avalon Fremont		1,056		1,720	$	1.63
Pentagon		810		1,150	$	1.42
Pentagon		900		1,225	$	1.36
Treetops		900		1,425	$	1.58
Stevenson Place		1,120		1,485	$	1.33
Stevenson Place		1,010		1,435	$	1.42
Briarwood		800		1,150	$	1.44
Briarwood		850		1,215	$	1.43

	The rent comparables exhibit a range of rental rates from $1,150 to $1,720 per month or $1.33 to $1.64 per square foot. The subject’s quoted rent range of $1.49 to $1.58 per square foot falls within the range of rents illustrated by the comparable properties.
One-Bedroom Rent	Pathfinder Village Apartments offers 104 three-bedroom floor plans that range in size from 1,040 to 1,100 square feet. The average quoted rents for these floor plans range from $1,555 to $1,633 per month or $1.45 to $1.50 per square foot. The comparable rents with regard to similar sized three-bedroom apartments are summarized in the chart below.

THREE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)		Rent/Month		Rent/SF
Subject		1,040	$	1,555	$	1.50
Subject		1,100	$	1,633	$	1.48
Avalon Fremont*		1,120	$	1,760	$	1.57
Avalon Fremont		1,369	$	2,100	$	1.53
Pentagon		1,000	$	1,475	$	1.48
Stevenson Place*		1,120	$	1,485	$	1.33
Stevenson Place*		1,010	$	1,435	$	1.42

* Large two-bedroom unit

Rent Conclusion The subject is most similar to Pentagon, Treetops and Briarwood. These properties are rated as being generally similar to the subject. Avalon is a new property, which is superior to the subject in term of overall appeal and condition. Stevenson Place is similar to the subject; however, it is rated as being inferior to the subject in term of overall appeal. In general, the

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 31

subject’s rental rates should be similar to the rents illustrated by Pentagon, Treetops and Briarwood; below the rents illustrated by Avalon and slightly above the rents illustrated by Stevenson Place.

Treetops Apartments is in the initial stages of redevelopment. The renovations include the replacement of siding and roofing and landscaping improvements, as well as renovation of the leasing center and laundry facilities. The property renovation will include extensive interior renovation of 75% of the units as well as the conversion of approximately 20 two-bedroom, one-bathroom units to add an additional bathroom and washer and dryer. Interior renovations are expected to begin in the first quarter of 2007, with completion of the entire project in late 2008.

As illustrated above, the rent for the subject’s two bedrooms floor plans are within a tolerable variance of the range of rents illustrated by Pentagon, Treetops and Briarwood, the properties rated as being most similar. Only two properties offer three-bedroom floor plans: Avalon and Pentagon. Pentagon was rated as being most similar to the subject’s three-bedroom unit type. For comparison purposes we have also included large two-bedroom unit offered by the comparable. The rental rates indicated by the selected comparable large two-bedroom units represent good indicators of market rent for the subject’s three-bedroom units.

The subject’s rental rate structure is appropriately aligned with the rents illustrated by Pentagon, Treetops and Briarwood; below the rents illustrated by Avalon and slightly above the rents illustrated by Stevenson Place.

The average quoted rent for the subject’s two and three-bedroom floor plans appear to be market oriented based on a review of market data. In addition, a review of the provided rent roll indicates that recent leases are being executed at the quoted rental rate, indicating that the quoted rates are accepted by the market.

Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 32

ECONOMIC RENT POTENTIAL-PATHFINDER VILLAGE APARTMENTS

Unit Type	Mix		Size (SF)		Total Area		Economic Rent/Unit		Economic Rent/SF		Total Rent
2BR/1BA		51		830		42,330	$	1,240	$	1.49	$	63,240
2BR/2BA		47		870		40,890	$	1,344	$	1.54	$	63,168
2BR/2BA		44		900		39,600	$	1,418	$	1.58	$	62,392
3BR/2BA		24		1,040		24,960	$	1,555	$	1.50	$	37,320
3BR/2BA		80		1,100		88,000	$	1,633	$	1.48	$	130,640
Totals/Average		246		958		235,780	$	1,240	$	1.49	$	356,760

HIGHEST AND BEST USE

HIGHEST AND BEST USE AS IF VACANT

Surrounding Land Uses	Predominately residential developments with multifamily to west of the subject.
Physically Possible	Being situated along a primary commercial corridor,the subject site benefits from good accessibility and visibility. Residential or commercial use would benefit from the site’s exposure and accessibility to other parts of Fremont.
Legally Permissible	Multifamily use is the intended use of the site.
Financial Feasible	Multifamily development is occurring throughout the East Bay area of San Francisco. Economic conditions in the area are strong and demand for multifamily housing appear strong as evidenced by high occupancy rates and increasing rents in exiting units and development of over 2,000 new units at this time. The preceding suggests that sufficient entrepreneurial profit incentive is being met to justify the financial feasibility of new construction.
Conclusion	New multifamily development.
HIGHEST AND BEST USE AS IMPROVED
Current Improvements	246-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 33

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the San Francisco Bay Area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 34

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $356,760. The annual gross rent potential estimated for the apartment units total $4,281,120.

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease was 4.1%, 5.8% and 0.5% in 2003, 2004 and 2005, respectively. With periodic increases during 2006, the annualized year-to-date amount equates to 6.0%. Based on the subject’s history, we have deducted a loss to lease expense of 5.0% of the potential gross income or $214,056.

Concessions: Rent concessions in the market are prevalent in an attempt to bolster occupancy at area apartments. Concessions usually consist of reduced or free rent over a portion of the lease term. There was an increasing trend in concessions between 2003 and 2004, but has decreased since leveling off in 2005. As of year-to-date 2006, concessions presented themselves at 3.8% of the property’s gross rent potential. Based on the operating history at the subject, concessions are projected at 5.0% of the estimated gross rent potential or $214,056.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 97% occupied. Properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 94% to 98%. Information presented in the Apartment Market Overview section of this report indicates that as of the 3rd Quarter 2006, the East Bay’s average apartment vacancy rate was 4.7%.

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 35

Based on the subject’s historical and current level of occupancy, tempered against the weighted average occupancy reported by competing properties in the influencing area and occupancy level indicated by similar vintage properties in the East Bay submarket, a vacancy factor of 4.0% is estimated for the subject property. In addition, a 1.0% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 5.0%.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Utility reimbursements were $475, $645 and $583 per unit in 2003, 2004 and 2005. The annualized year-to-date 2006 utility income equates to $847 per unit. Based on the historical trend, we have estimated Utility Income to be $159,900, or $650 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts range from 4.0% to 5.9%. Based on historical other income receipts, we have estimated Other Income to be 5.0% of the gross rent potential or $214,056.

Expenses: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed. Typical operating expenses for garden apartments in the San Francisco Bay Area, as reported by IREM and four comparable properties, have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property including year-end figures for 2003, 2004 and 2005 and year-to-date figures for 2006 through October. The year-to-date 2006 figures have been annualized for analytical purposes. The subject property and comparable expense data are presented on a per unit basis and summarized in the following tables.

SUMMARY OF OPERATING HISTORY AND BUDGET — PATHFINDER VILLAGE APARTMENTS

	2003						2004						2005						October 2006 YTD
Item	Actual			Per Unit			Actual			Per Unit			Actual			Per Unit			Actual			Annualized			Per Unit
Gross Rent Potential	$	4,107,106		$	16,696		$	4,137,158		$	16,818		$	3,830,214		$	15,570		$	3,382,060		$	4,058,472		$	16,498
Loss to Lease	$	(169,581	)	$	(689	)	$	(239,124	)	$	(972	)	$	(17,421	)	$	(71	)	$	(204,448	)	$	(245,338	)	$	(997	)
Concessions	$	(94,803	)	$	(385	)	$	(282,493	)	$	(1,148	)	$	(259,482	)	$	(1,055	)	$	(129,308	)	$	(155,170	)	$	(631	)
Vacancy/Credit Loss	$	(580,928	)	$	(2,361	)	$	(490,394	)	$	(1,993	)	$	(365,237	)	$	(1,485	)	$	(110,010	)	$	(132,012	)	$	(537	)
Utility Income	$	116,967		$	475		$	158,632		$	645		$	143,371		$	583		$	173,664		$	208,397		$	847
Other Income	$	212,684		$	865		$	229,445		$	933		$	155,000		$	630		$	155,657		$	186,788		$	759
Effective Gross Income	$	3,591,445		$	14,599		$	3,513,224		$	14,281		$	3,486,445		$	14,173		$	3,267,615		$	3,921,138		$	15,940
Utilities	$	188,249		$	765		$	188,743		$	767		$	198,345		$	806		$	215,626		$	258,751		$	1,052
Repairs & Maintenance	$	380,126		$	1,545		$	420,605		$	1,710		$	486,238		$	1,977		$	395,169		$	474,203		$	1,928
Administrative	$	107,512		$	437		$	161,540		$	657		$	193,147		$	785		$	98,832		$	118,598		$	482
Marketing	$	78,541		$	319		$	79,306		$	322		$	82,689		$	336		$	70,258		$	84,310		$	343
Payroll	$	260,089		$	1,057		$	361,025		$	1,468		$	437,764		$	1,780		$	321,621		$	385,945		$	1,569
Management	$	145,841		$	593		$	137,736		$	560		$	135,146		$	549		$	128,714		$	154,457		$	628
Insurance	$	134,937		$	549		$	134,929		$	548		$	134,937		$	549		$	132,383		$	158,860		$	646
Real Estate Taxes	$	239,795		$	975		$	234,569		$	954		$	242,209		$	985		$	204,835		$	245,802		$	999
Total Expenses	$	1,535,090		$	6,240		$	1,718,453		$	6,986		$	1,910,475		$	7,766		$	1,567,438		$	1,880,926		$	7,646
Net Operating Income	$	2,056,355		$	8,359		$	1,794,771		$	7,296		$	1,575,970		$	6,406		$	1,700,177		$	2,040,212		$	8,294

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 36

Utilities	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject property’s 2003, 2004 and 2005 utilities expenses were $765, $767 and $806 per unit, respectively. The annualized year-to-date 2006 expense equates to $921 per unit. Based on historical expenditures and trending forward for inflation, Utilities are processed at $850 per unit or $209,100.
Repair & Maintenance:	This category includes general repair and maintenance items, contract services and turnover expenses. The subject’s historical repair and maintenance expense for 2003, 2004 and 2005 were $1,545, $1,710 and $1,977 per unit, respectively. The annualized year-to-date 2006 expense equates to $1,928 per unit. The subject’s historical expense appears high in comparison to industry averages. However, the subject consists of an atypical unit mix of 104 three-bedroom and 350 two-bedroom units. In addition, the subject has a history of high turnover do to the occupancy profile. After review of the subject’s historical operating figures, tempered against industry averages, the repairs and maintenance expense is estimated at $405,900, or $1,650 per unit.
Administrative	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense for 2003, 2004 and 2005 were $437, $657 and $785 per unit, respectively. The annualized year-to-date 2006 expense equates to $482 per unit. The 2005 administrative expense appears high in comparison to industry averages. This is attributed to the non-recurring expense of temporary employment agency as well as some changes in accounting procedures. Based on 2004 and year-to-date 2006 historical amounts, Administrative expenses are projected at $123,000, or $500 per unit.
Marketing	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense for 2003, 2004 and 2005 were $319, $322 and $336 per unit, respectively. The annualized year-to-date 2006 expense equates to $343 per unit. Marketing expenses are projected at $79,950, or $325 per unit.
Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject’s historical payroll expense has been somewhat sporadic. The Payroll expense for 2003, 2004 and 2005 were $1,057, $1,468 and $1,780 per unit, respectively. The annualized year-to-date 2006 expense equates to $1,569 per unit. Reportedly, the increasing trend is attributed to increases in worker compensation insurance. Payroll expenses are projected at $393,600, or $1,600 per unit.
Management	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.3% to 4.5% of

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 37

	Effective Gross Income. A market-oriented fee of 4.0% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject’s management fee is estimated to be $157,091, or $639 per unit.
Insurance	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance expense for 2003, 2004 and 2005 were $549, $548 and $549 per unit, respectively. The annualized year-to-date 2006 expense equates to $646 per unit. Insurance expenses are projected at $147,600, or $600 per unit.
Taxes	As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $500,000, or $2,033 per unit.
Reserves for Replacements	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Considering the age of the subject property, a reserve for replacement allowance aligned with the higher end of the aforementioned range of $350 per unit or $86,100 is estimated for the subject property.
Total Expenses	Total expenses have been estimated at $2,105,766, or 53% of effective income. Information provided by the Institute of Real Estate Management (IREM) indicates that expense ratios for apartment complexes in the subject’s region (Region IV) range from 41.0% to 35.6%, with an average of 47.4%, exclusive of a reserve allowance exclusive of reserves, the subject’s expense ratio equates to 50%. The total operating expenses projected for the subject property falls outside this range and aligned toward the high end of the range indicated by the Sale Comparables, which exhibit a range of expense ratios of 37% to 52%. It is noted that the subject has a history of high operating cost primarily due to its atypical unit mix and high turnover rate. In addition, the subject’s high expense ratio includes an increase in real estate taxes, which assumes the sale of the subject at the concluded value.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provide a return on owner’s equity. We have estimated the NOI to be $1,907,142. The subject’s income and expense pro forma is summarized below.

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 38

VALUATION PRO FORMA

Item	Total			Per Unit
Gross Rent Potential	$	4,281,120		$	17,403
Loss to Lease	$	(214,056	)	$	(870	)
Concessions	$	(214,056	)	$	(870	)
Vacancy/Credit Loss	$	(214,056	)	$	(870	)
Utility Income	$	159,900		$	650
Other Income	$	214,056		$	870
Effective Gross Income	$	4,012,908		$	16,313
Utilities	$	209,100		$	850
Repairs & Maintenance	$	405,900		$	1,650
Administrative	$	123,000		$	500
Marketing	$	79,950		$	325
Payroll	$	393,600		$	1,600
Management	$	160,516		$	653
Insurance	$	147,600		$	600
Real Estate Taxes	$	500,000		$	2,033
Reserves	$	86,100		$	350
Total Expenses	$	2,105,766		$	8,560
Net Operating Income	$	1,907,142		$	7,753

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.
Market Extraction	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

SUMMARY OF MARKET DERIVED OVERALL RATES

Property	Date	Year Built		Unit Size		Overall Rate
The Woods	Aug-06		1978		160		5.4	%
Casa Blanca	Feb-06		1970		54		5.6	%
Paseo Park	Dec-05		1986		134		5.4	%
Park Sequoia	Aug-05		1986		248		4.8	%
Briarwood	Jun-05		1982		160		5.0	%

The sales exhibit overall rates that range from 4.8% to 5.6% and produce an average of 5.2%. The sales represent recent transactions of 1970s and 1980s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics.

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 39

	The comparable properties are situated in East San Francisco Bay Area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate in the range of approximately 5.0% to 6.5% is suggested.
Survey of Investors	The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the 3rd Quarter 2006 Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. Capitalization rates in the San Francisco Bay Area are generally aligned with the low end of the national survey range and below the national average.
Conclusion	The sales exhibit overall rates that range from 4.8% to 5.6% and produce an average of 5.2%. Based on the indicators exhibited by the sales data, an appropriate cap rate for the subject property is concluded to be in the range of 5.0% to 6.0%. A rate of 5.5% is processed for valuation purposes.
Valuation:	Capitalizing the estimated Net Operating Income of $1,907,142 by a 5.5% rate results in a value conclusion of $34,700,000, rounded ($1,907,142 NOI ¸ 5.5% OAR = $34,675,309).
Final Value:	$34,700,000

SALES COMPARISON APPROACH

The Sales Comparison Approach is an estimate of value derived from a sales comparison with similar type properties. This method directly reflects the actions of buyers and sellers in the marketplace. Substitution is the underlying principle affecting the choice of buyers and sellers, and which implies that a prudent person will not pay more to buy a property than it would cost to buy a comparable substitute property. The price a typical purchaser pays is usually the result of a comparison process of various alternatives.

The sales data is analyzed and compared to the subject for such items as time, location, size, amenities and condition. Adjustments for differences are made where appropriate and so indicated by the market. The process develops an indication of what the selected comparables would have sold for had they possessed all the relevant physical and economic characteristics of the property being appraised. After analysis, the indicators derived are correlated into a value estimate based upon the quality of information obtained and the logical conclusions of the appraiser.

Pathfinder Village Apartments	December 8, 2006
Fremont, California	Page 40

The local market has been active in terms of investment sales of similar properties. Adequate sales exist to formulate a defensible value for the subject property via sales comparison. The following table is a summary of the comparable sales, which are further detailed in the Addenda of this report.

PATHFINDER VILLAGE APARTMENTS – IMPROVED SALE SUMMARY

Sale No.	1	2	3	4	5
Name	The Woods	Casa Blanca	Paseo Park	Park Sequoia	Briarwood
Location	40640 High Street	38863 Fremont Blvd	37200 Paseo Padre	3190 Red Cedar Terr.	4200 Bay St
	Fremont, CA	Fremont, CA	Fremont, CA	Fremont, CA	Fremont, CA
Sales Price	$21,200,000	$6,720,000	$19,700,000	$44,750,000	$19,500,000
Sale Date	August 18, 2006	February 6, 2006	December 22, 2005	August 31, 2005	June 1, 2005
Year Built	1978	1970	1986	1986	1982
No. of Units	160	54	134	248	160
Net Rentable Area (SF)	104,980	42,822	105,900	165,874	110,352
Avg. Unit Size (SF)	656	793	790	669	690
Occupancy	95%	95%	95%	95%	95%
Price/SF	$201.94	$156.93	$186.02	$269.78	$176.71
Price/Unit	$132,500	$124,444	$147,015	$180,444	$121,875
Net Income	$1,139,408	$373,548	$1,054,828	$2,127,905	$981,872
NOI/SF	$10.85	$1.87	$9.96	$4.68	$8.90
NOI/Unit	$7,121	$6,918	$7,872	$8,580	$6,137
Cap Rate (OAR)	5.4%	5.6%	5.4%	4.8%	5.0%
EGIM	10.9	9.3	11.0	13.3	9.5
Expense Ratio (OER)	41.2%	48.4%	41.1%	36.8%	52.2%

Comparable #1:	This is the August 2006 sale of a 160-unit apartment located approximately one mile east of the subject property. The location of the comparable property is rated as being similar to that of the subject property. Built in 1978, this property consists of two and three-story wood frame buildings with stucco exteriors. The buildings have pitched roofs with composition shingle covers. This property has a net rentable area of 104,980 square feet and an average unit size of 656 square feet. The property was in good physical condition at time of sale. This complex offers various one and two-bedroom floor plans. This property’s amenities include a swimming pool, fitness center, laundry facilities and on-site management office. Unit amenities include standard kitchen appliances, patio/balconies, ceiling fans and mini blinds.
	In comparison to the subject, this property is generally similar in terms of amenities and location. In terms of age and condition it is considered slightly superior. As such, a downward adjustment of 5% was applied. Its average unit size is smaller and an upward adjustment was made for its inferior (smaller) average unit size.
Comparable #2:	This transaction represents the February 2006 sale of a 54-unit apartment located approximately one mile west of the subject property along Fremont Boulevard. The location of the comparable property is rated as being similar to that of the subject property. Built in 1970, this property consists of six, two-story buildings with stucco exteriors and flat roofs. This property has a net rentable area of 42,822 square feet, suggesting an average unit size of 793 square feet. The property was in average physical condition at time of sale. This complex offers one and two-

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 41

	bedroom floor plans. Amenities include a swimming pool, laundry facility and on site management office. Unit amenities include standard kitchen appliances, fireplaces, walk-in closets and mini-blinds.
	This property is generally similar to the subject in terms of location, age and condition and amenities. Its average unit size of 793 square feet is smaller compared to the subject’s 958 square feet, as such, an upward adjustment was made for its inferior (smaller) average unit size.
Comparable #3:	This is the December 2005 sale of a 134-unit apartment located less than three miles northwest of the subject property. The location of the comparable property is rated as being similar to that of the subject property. Built in 1986, this property consists of two-story wood frame buildings with stucco exteriors and pitched composition shingle roofs. This property has a net rentable area of 105,900 square feet and an average unit size of 669 square feet. The property was in good physical condition at time of sale. This complex offers various one and two- bedroom floor plans. Property amenities include two swimming pools, laundry facilities and on-site management office. There are 140 open parking spaces and 134 covered parking spaces. Unit amenities include standard kitchen appliances, ceiling fans, patio/balcony, storage lockers and mini-blinds.
	In comparison to the subject, this property is generally similar in terms of amenities and location. In terms of age and condition it is considered superior. As such, a downward adjustment of 10% was applied. In addition, its average unit size is smaller and an upward adjustment was made for its inferior (smaller) average unit size.
Comparable #4:	This transaction represents the August 2005 sale of a 248-unit apartment located less than three miles northwest of the subject property. The location of the comparable property is rated as being similar to that of the subject property. Built in 1986, this property consists of 20, two-story buildings with stucco exteriors and flat roofs. This property has a net rentable area of 165,874 square feet, suggesting an average unit size of 669 square feet. The property was in good physical condition at time of sale. This complex offers one and two-bedroom floor plans. Amenities include a swimming pool, clubhouse, fitness center, covered parking, microwave and patio/balcony. The property was has since been converted into condominiums and has been renamed Baywood Villas.
	In comparison to the subject, this property is generally similar in terms of location. In terms of amenities, age and condition it is considered superior. As such, a downward adjustment of 10% was applied. In addition, its average unit size is smaller and an upward adjustment was made for its inferior (smaller) average unit size.
Comparable #5:	This is the June 2005 sale of a 160-unit apartment located less than one mile southeast of the subject property. The location of the comparable

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 42

property is rated as being similar to that of the subject property. Built in 1982, this property consists of two-story wood frame buildings with stucco exteriors. The buildings have pitched roofs with composition shingle covers. This property has a net rentable area of 110,352 square feet and an average unit size of 690 square feet. The property was in good physical condition at time of sale. This complex offers various one and two-bedroom floor plans. This property’s amenities include patios/balconies, cable ready, ceiling fan(s), dishwasher and oversized closets. Community features include clubhouse, emergency maintenance, garage/covered parking, high speed internet access, laundry facility and swimming pool.

In comparison to the subject, this property is generally similar in terms of amenities and location. In terms of age and condition it is considered slightly superior a downward adjustment of 5% was applied. Its average unit size of 690 square feet is smaller compared to the subject 958 square feet. As such, an upward adjustment was made to reflect its inferior (smaller) average unit size.

PRICE PER UNIT ANALYSIS

The comparables are examined utilizing the following criteria:

Financing:	The comparable sales were either all cash transactions or were financed by primary lenders at market-oriented rates. Adjustments are not required since atypical financing is not indicated.
Time:	The sales analyzed all occurred within the past 17 months. No material adjustment for changes in market conditions is required.
Location:	Adjustments are made for locational attributes including proximity to area employers, local transportation and access to local neighborhood services. The location of each sale is analyzed individually as it compares to the subject property’s location. All of the sales are located in Fremont and rated as being similar to that of the subject. Apartment market conditions in the subject’s location are considered strong as are the comparables.
Age/Condition:	Adjustments for age/physical condition were based on exterior observation, as well as the original date of construction. All of the sales were constructed in the 1970’s and 1980’s, relatively similar to that of the subject property.
	In terms of age and condition Sale Nos.1 and 5 were rated as being slightly superior. As such, a downward adjustment of 5% was applied to each of these sales. Sale Nos. 3 and 4 were both constructed in 1986 and rate as being superior to the subject in terms of age and condition. These two sales were adjusted downward 10% to reflect their respective superior age and condition compared to the subject.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 43

Unit Size/Utility:	The subject property has an average unit size of 958 square feet. All of the sales exhibit smaller average unit sizes, ranging from 656 to 793 square feet. Typically, properties with larger average unit sizes command higher sale prices per unit. Conversely, properties with smaller average unit sizes sell for less. As such, each sale comparables was adjusted based on the average unit size of the respective properties in comparison to the subject property.
Amenities:	The subject property is a 1973 vintage asset with standard community amenities and standard tenant amenities. With the exception of Sale No. 4, all of the sales offer similar community and unit amenities. No adjustment to the sale price paid for Sale Nos. 1, 2, 3 and 5.
	The following chart summarizes the adjustments considered for each of the factors described above.

COMPARABLE SALES ADJUSTMENT GRID

Sale No.	1			2			3			4			5
Sales Price/Unit	$	132,500		$	124,444		$	147,015		$	180,444		$	121,875
Conditions of Sale		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Adjusted Price	$	132,500		$	124,444		$	147,015		$	180,444		$	121,875
Time		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Time Adjusted Price	$	132,500		$	124,444		$	147,015		$	180,444		$	121,875
Location		0.00	%		0.00	%		0.00	%		000	%		0.00	%
Age/Condition		-5.00	%		0.00	%		-10.00	%		-10.00	%		-5.00	%
Unit Size/Utility		10.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Amenities		0.00	%		0.00	%		0.00	%		-10.00	%		0.00	%
Total Adjustments (%)		5.00	%		5.00	%		-5.00	%		-15.00	%		0.00	%
Adjusted Sale Price	$	139,125		$	130,666		$	139,664		$	153,377		$	121,875

Source: Adjustments by KTR.

Conclusion:

The unadjusted sales prices range from $121,875 to $180,444 per unit with an average of $141,256 per unit. After adjustments, the sales prices range from $121,875 to $139,664 per unit with an average of $136,941 per unit. None of the sales required a significant degree of adjustment and equal emphasis is placed on each in concluding to an appropriate value for the subject property. Based on the adjustments considered and indicators exhibited by the sales data, a value of $137,000 per unit is estimated for the subject property. Application of the $137,000 per unit value indicator to the 246 units comprising the subject property results in a value estimate of $33,700,000 (rounded).

246 units x $137,000/unit = $33,702,000

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 44

EGIM ANALYSIS	As Illustrated in the write-ups of the comparable sales presented in the Addenda, the sales illustrate a range of Effective Gross Income Multipliers (EGIMs) from 9.3 to 11.0 with an average of 10.8.
	Important in selecting an appropriate EGIM is the review of corresponding operating expenses as there is an inverse relationship that generally holds among EGIMs and operating expenses. The sales data illustrates expense ratios that range from 36.8% to 52.2% with an average of 40.0%. The subject property’s operating expense ratio has been projected to be 52.5% based on the income and expense analysis presented in the Income Capitalization Approach section of this report, an amount that is higher than the average expense ratio exhibited by the comparables. The preceding would suggest that an appropriate EGIM for the subject property would be aligned with the low end of the range exhibited by the improved sales data under analysis. An EGIM of 9.0 is concluded for the subject property.
	Application of an EGIM of 9.0 to the effective gross income (EGI), which was estimated at $4,012,908, results in a value estimate of $36,100,000 (rd.) as follows.
	$4,012,908 x 9.0 = $36,116,172
Conclusion	The values produced by the price per unit and EGIM technique are $33,700,000 and $36,100,000. The results of each valuation technique are generally similar, varying by approximately 7%. With equal consideration given to each technique, a final value via the Sales Comparison Approach of $34,900,000 is concluded for the subject property.
	Based on the foregoing, the Market Value of the Fee Simple Interest in the subject property, as of November 16, 2006, is:

Value via the Sales Comparison Approach                $34,900,000

Pathfinder Village Apartments
Fremont, California December 8, 2006
Page 45

RECONCILIATION

Cost Approach		N/A
Income Capitalization Approach	$	34,700,000
Sales Comparison Approach	$	34,900,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE                $34,700,000

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

ADDENDA

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

SUBJECT PHOTOGRAPHS

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Clubhouse/Leasing Office

Interior View of Clubhouse

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Interior View of Leasing Office/Clubhouse

Rear View of Clubhouse/Leasing and Pool

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Side View of Swimming Pool

Front View of Typical 2-Story Building

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Side/Rear View of Typical 3-Story Building

Rear View of Typical 3-Story Building

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Rear View of Typical Building and Parking

Typical Courtyard

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Interior View of Typical Unit

Interior View of Typical Kitchen

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Rent Comparable No. 1

Rent Comparable No. 2

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Rent Comparable No. 3

Rent Comparable No. 4

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

Rent Comparable No. 5

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

REGIONAL LOCATION MAP

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

NEIGHBORHOOD MAP

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

COMPARABLE RENTALS MAP

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

COMPARABLE SALES MAP

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

QUALIFICATIONS

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

WILLIAM L. CORBIN, MAI
SENIOR MANAGING DIRECTOR

WILLIAM CORBIN, MAI is Executive Vice President and manager of the Western Regional Office of KTR Newmark Real Estate Services LLC, located at 10866 Wilshire Boulevard, Los Angeles, California 90046. His direct telephone number is 310/ 234-4754.

Education

University of California at Los Angeles, 1977
     Bachelor of Arts
     Major in Economics

University of Southern California, 1980
      Master of Business Administration
     Concentration in Real Estate and Finance

Designations

MAI Member — Appraisal Institute

Licenses

California Certified General Real Estate Appraiser
Arizona Certified General Real Estate Appraiser

Affiliations

National Council of Real Estate Investment Fiduciaries (NCREIF) designated representative
- - Valuation sub-committee co-chairperson for Standardized Commercial Appraisal Report

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

WILLIAM L. CORBIN, MAI

Experience

Mr. Corbin began his career with an intensive education in real estate market analysis as a consultant with Robert Charles Lesser & Co. from 1980 to 1983. With RCLCo, he performed over 75 market supply and demand, economic feasibility, and strategic planning assignments for prominent regional and national clients. During this very active construction period, nationally, Mr. Corbin had the opportunity to visit and analyze commercial real estate market conditions is over 20 major metropolitan areas in the Western and Central U.S.

As a mortgage banker from 1983 to 1992, Mr. Corbin arranged a wide variety of financing structures with institutional lenders and equity investors, including permanent loans, construction loans, and joint ventures. In total with George Smith Financial Services/Grubb & Ellis and Center Financial Group, he worked with over 90 institutions and closed over 150 transactions totaling in excess of $700,000,000.

As an appraiser, Mr. Corbin has performed numerous current value narrative appraisals for national and regional institutional lenders and investors. His previous experience in commercial real estate finance gives him particular insight to the capital and investment markets and their impact on institutional real estate activity and values. He has performed a wide variety of appraisals of warehouse distribution buildings, industrial and business parks, office buildings, shopping centers, and apartments. He worked with Landauer Associates from 1992 to 1995, managing the Aetna Realty Investors account for western region property appraisals.

Currently with KTR Newmark ten years, Mr. Corbin is responsible for managing the Los Angeles regional office, developing and managing institutional accounts, as well as performing direct valuation work for those clients. He also heads KTR Newmark’s national pension fund valuation practice and is the firm’s designated representative to NCREIF, a national organization of pension fund advisors that creates and implements operational policy standards for the industry. Mr. Corbin is currently the chairperson for NCREIF’s valuation sub-committee that is contributing to developing a standardized commercial appraisal report in conjunction with the Appraisal Institute that will become the valuation industry standard.

In addition to professional experience, Mr. Corbin has served as a real estate course instructor and conference collaborator for UCLA Extension

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

WILLIAM L. CORBIN, MAI

Following is a list of representative clients Mr. Corbin has performed services for:

Clients — As Appraiser and Consultant
Aetna Realty Investors, Inc.
Bechtel Corporation
CALTRANS
Catellus Corp.
Philips, North America
KOAR Hotel Group
Copley Institutional Realty
Estate of James Campbell
Franklin Properties, Inc.
Triton Energy Corp.
Union Oil/Moreland Development
Kaiser Aluminum Corp.
Lockheed Air Terminal, Inc.
Hong Kong and Shanghai Bank Corp.
PNC Bank
CALSTRS
Heller Financial
Chase Commercial Mortgage Banking
Daiwa Securities America
Lennar Partners
SSR Realty Advisors
Douglas, Emmett Realty Advisors
Dresdner Bank
Prudential Mortgage Capital
TIAA-CREF
Principal Real Estate Investors
RREEF
Eurohypo Bank
Massachusetts Mutual Life
McCullough Oil Properties
Mobil Land Development
Chevron Land Development
Home Savings of America
Safeway Stores
Santa Anita Realty
Santa Fe Land Improvement Co.
Taft Broadcasting Co.
Comerica Bank
Trammell Crow Company
Bank of New York
Majestic Realty
Sakura Bank
Newfield Enterprises
J. P. Morgan Mortgage Capital
Lend Lease Mortgage Capital
Whitehall Fund II
AMB Institutional Realty Advisors
TA Associates Realty
LACERA
Henderson Global Investors
INVESCO
Cornerstone Real Estate Advisers
Deutsche Bank

Clients — As Mortgage Banker
AEtna Life & Casualty
BALCOR
Citicorp REIG
Forest City Properties
Heller Financial Services
Home Savings of America
MetroBank
Principal Mutual Life
Societe Generale
U.S. Bancorp
William Morris Agency
IBEW Pension Fund
AFL-CIO Housing Trust
Bank of America
Creative Artists Agency
General Electric Credit
Hollywood Center Studios
Industrial Bank of Japan
Massachusetts Mutual Life
Security Pacific National Bank
Textron Financial Services
Union Bank
DeAnza Group, Inc.
Nationwide Life

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

STEVEN J. GOLDBERG, MAI, CCIM
SENIOR MANAGING DIRECTOR

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Newmark Real Estate Services LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

Pathfinder Village Apartments
Fremont, California December 8, 2006
Addenda

QUALIFICATIONS OF THE APPRAISER
JACKSON L. AILLS

Jackson L. Aills is certified as General Real Estate Appraiser in the State of Texas (TX-1331035-G). Mr. Aills has a Bachelor of Business Administration from the University of Mississippi and has attended numerous real estate education courses and seminars, including those offered by the Appraisal Institute.

Mr. Aills has been involved in real estate appraising since 1989. He currently holds the position of Senior Appraiser for the Dallas office of KTR Newmark Real Estate Services LLC, a New York based real estate firm.

Real estate appraisal assignments have been performed on a variety income producing properties throughout the United States. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, REITs, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors and governmental agencies. The scope of his real estate assignments have included office buildings, industrial properties, multifamily projects, retail, hotels, proposed construction, special use properties, and raw land.

EX-99.(C)(21)

APPRAISAL
OF
SCOTCHOLLOW APARTMENTS
203 LAURIE MEADOWS DRIVE
SAN MATEO, CALIFORNIA

KTR JOB NO. 7-7-06512F

December 8, 2006

Ms. Martha Long
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, SC 29601

Re: Scotchollow Apartments
203 Laurie Meadows Drive
San Mateo, California

Dear Ms. Long:

Pursuant to your request, KTR Valuation & Consulting Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of subject property, free and clear of mortgage financing. The subject property is valued as of November 15, 2006, which corresponds to the date on which the property was inspected by KTR. The value is predicated upon an exposure and marketing period of one year or less.

The subject property consists of a 15.00-acre tract of land improved with a 418-unit garden-style apartment complex known as the Scotchollow Apartments. Construction of the improvements was reportedly completed in 1971. The structural improvements were observed to be in average physical condition and consist of two-and three-story wood frame construction with stucco veneer and wood trim exterior walls and pitched roofs with asphalt shingle cover.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

5477 Glen Lakes Drive, Suite 202, Dallas, TX 75231

tel 214.363.3373 • fax 214.369.4388
www . firstam . com

Ms. Martha Long
VMS National Properties JV
December 8, 2006
Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of November 16, 2006, is:

SIXTY-SEVEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($67,800,000)

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Sincerely,

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director
By:	Jackson Aills
	Appraiser

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page i

CERTIFICATE OF VALUE

We, Steven J. Goldberg, MAI, and Jackson Aills, certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and my personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

No one other than the undersigned assisted in the preparation of this appraisal.

Jackson Aills made a personal inspection of the property that is the subject of this appraisal on November 16, 2006. Steven J. Goldberg did not personally inspect the subject property.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, William L. Corbin, MAI and Steven J. Goldberg, MAI have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page ii

As of the date of this appraisal, William L. Corbin MAI is currently certified with the State of California Office of Real Estate Appraisers and is licensed as a Certified General Real Estate Appraiser (AG025737) until February 27, 2007.

KTR VALUATION & CONSULTING SERVICES, LLC

By:	William L. Corbin, MAI	By:	Steven J. Goldberg, MAI, CCIM
	Senior Managing Director		Senior Managing Director
By:	Jackson Aills
	Appraiser

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page iii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page iv

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page v

SUBJECT PROPERTY PHOTOGRAPH

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page vi

TABLE OF CONTENTS

Title	Page
Letter of Transmittal Certificate of Value		i
Basic Assumptions and Limiting Conditions	iii
Subject Photograph		v
Table of Contents	vi
Executive Summary		1
Introduction and Premises of the Appraisal		2
Regional Overview		4
Neighborhood Overview		14
Site Analysis		16
Real Estate Taxes		18
Zoning		19
Description of Improvements		20
Apartment Market Overview		23
Economic Rent Analysis		25
Highest and Best Use		32
Valuation Procedure		33
Income Capitalization Approach		34
Sales Comparison Approach		40
Reconciliation and Final Value Conclusion		47

ADDENDA
Subject Photographs
Comparable Rental Photographs
Comparable Sale Photographs
Regional Location Map
Neighborhood Map
Comparable Rentals Map
Comparable Sales Map
Qualifications

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 1

EXECUTIVE SUMMARY

Property:	Scotchollow Apartments
Location:	203 Laurie Meadows Drive, San Mateo, California
Assessors Parcel ID Nos:	040-350-490
	040-350-500
	040-350-510
	040-350-520
	040-350-530
	040-350-540
	040-350-550
	San Mateo County Assessor’s Office
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	November 15, 2006
Date of Report:	December 8, 2006
Interest Appraised:	Fee Simple Estate
Description of Property:	The subject property consists of a 15 tract of land improved with a 418-unit garden-style apartment complex known as the Scotchollow Apartments. Construction of the improvements was reportedly completed in 1971. Scotchollow Apartments contains 324,335 rentable square feet which suggests an average unit size of 776 square feet.
Location:	The subject property is located in the southern sector of the City of San Mateo, location along Laurie Meadows Drive, approximately two miles south of the San Mateo urban center.
Zoning:	The subject site is zoned R3 District — Multiple Family Dwellings (Medium Density) by the City of San Mateo. This is a medium density multifamily district located in certain areas close to the center of the city and various outlying areas.
Flood Zone:	According to the Federal Emergency Management Agency, the property is within Zone X, outside any special Flood Hazard Areas (Map No. 060328-0006B, Dated 10/19/2001).
Highest and Best Use:	Multifamily residential development.
Marketing Period:	Less than 12 months
Valuation Assumptions:

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 2

Average Market Rent (per Unit)	$1,525
Market Vacancy/Credit Loss	4.0%
Operating Expense Ratio	47%
Net Operating Income	$3,728,921
Overall Capitalization Rate	5.5%
Final Estimate of Market Value, by Approach Cost Approach:	N/A
Sales Comparison Approach:	$67,600,000
Income Approach:	$67,800,000
Final Estimate of Market Value:	$67,800,000

INTRODUCTION AND PREMISES OF THE APPRAISAL

Scope of the Assignment	According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.
	The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.
Purpose and Use of Appraisal	The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of November 15, 2006. It is for the internal use of AIMCO to facilitate asset evaluation and to be utilized in conjunction with a planned transaction with the limited partners.
Property Rights Appraised	The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 3

	“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)”.
Marketing Period	The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006 indicates that apartment properties in the national market have an average marketing time of 5.58 months, up 2.6% from the average of 5.44 months reported one year ago. This estimate seems reasonable, given recent market activity in the influencing area and the profile of the subject property.
Property History	Property tax records indicate that VMS National Properties Joint Venture is the current owner of record. The partnership’s managing general partner, MAERIL, is a subsidiary of AIMCO. MAERIL provides the company with management and administrative services.
	No conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale.
Most Likely Buyer	National and regional investors typically purchase multifamily properties of this size in markets such as the subject.
Definition of Market Value	Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:
	“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
	Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
		1.	buyer and seller are typically motivated;
		2.	both parties are well-informed or well advised, and acting in what they consider their best interests;
		3.	a reasonable time is allowed for exposure in the open market;
		4.	payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
		5.	the price represents the normal consideration for the property sold unaffected by special or creative financing or sales

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 4

concessions granted by anyone associated with the sale.”

REGIONAL OVERVIEW

Overview	The subject property is situated in the City of San Mateo, San Mateo County, within the San Francisco Bay Area. The San Francisco Bay Area, referred to locally as the Bay Area, is a geographically diverse metropolitan area that surrounds San Francisco Bay in northern California. Home to almost eight million people, it is composed of cities, towns, villages, military bases, airports, and associated regional, state, and national parks sprawled over nine counties and connected by a massive network of roads, highways, railroads, and commuter rail.
	The Bay Area is atypical in that its population is distributed across several regional urban and suburban centers. San Francisco was until recently the largest city in the region (it was surpassed by San Jose in the 1990 census) and remains the traditional and cultural center. The metropolitan area comprising the city of San Francisco together with Oakland and San Jose is the fifth-largest metropolitan area in the United States, after New York, Los Angeles, Chicago and Washington, D.C.- Baltimore.
	The San Francisco Bay Area consists of the nine counties including San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Solano, Napa, Sonoma, and Marin, situated on the perimeter of San Francisco Bay and San Pablo Bay. San Francisco, the geographical and cultural center of the region, is surrounded by Marin, Napa, Sonoma and Solano Counties to the north Alameda and Contra Costa Counties to the east; and San Mateo and Santa Clara Counties to the south. The large land area and highly diversified physical features of the Bay Area support a wide range of land uses. Land uses range from large agricultural areas to major urban centers, and environments range from mountain to marine.
	The San Francisco Bay Area is divided in to the following sub-regions.
	San Francisco — The City and County of San Francisco is generally placed in a category by itself geographically, mentally, and culturally. It is separated by water from the north, west and east, and by a county line from its neighbor cities to the south. San Francisco serves as the cultural and financial center of the region, and once was the population and economic center. It remains the Bay Area’s center of attraction, and it is the heart of its nightlife.
	East Bay — The eastern side of the bay, dominated by the city of Oakland but also including Alameda, Berkeley, Fremont, Livermore, Hayward and several small cities, is known locally as the East Bay. The East Bay is split into two regions, the inner East Bay, which sits on the Bay coastline, and the outer East Bay, consisting of inland valleys separated

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 5

from the inner East Bay by hills and mountains.

The inner East Bay consists of Oakland, Hayward, Fremont, Berkeley, and smaller suburbs surrounding or surrounded by these four major cities, such as Emeryville, San Leandro, and Richmond. The inner East Bay is more urban, more densely populated, has a much older building stock (built before World War II) and a more ethnically diverse population. Oakland hosts the region’s largest seaport and professional sports franchises in basketball, football, and baseball. As with many inner urban areas the Inner East Bay also features a high accumulation of crime as well as socio-economic problems. According to the FBI Uniformed Crime Reports, more than 50% of all homicides in the Bay Area in 2002 occurred within the city limits of Oakland and Richmond.

The outer East Bay consists of the cities of Walnut Creek, Concord, and Pleasant Hill, to the north (also referred as Central Contra Costa County) and the cities of Dublin, Pleasanton, Livermore, Danville, San Ramon to the south (sometimes referred to as the Livermore-Amador Valley or the Tri-Valley), as well as other smaller towns, such as Alamo and Orinda. They are connected to the inner East Bay by BART and by highways and the Caldecott Tunnel. The outer East Bay is mostly suburban to rural and was mostly built after World War II.

South Bay — The communities along the southern edge of the Bay are known as the South Bay, Santa Clara Valley, and Silicon Valley, although some Peninsula and East Bay towns are sometimes included in the latter. It includes the city of San Jose, and its smaller neighbors including Gilroy and the high-tech hubs of Santa Clara, Cupertino, Palo Alto and Sunnyvale, as well as many other suburbs.

Peninsula — The area between the South Bay and the City and County of San Francisco is known as the San Francisco Peninsula, locally just as The Peninsula. This area consists of a series of small cities and suburban communities along the Bay such as Palo Alto and Stanford University, Mountain View, Daly City, San Mateo, and Foster City, as well as various towns along the Pacific coast, such as Pacifica and Half Moon Bay.

North Bay — The region north of the Golden Gate Bridge is known locally as the North Bay. This area consists of Marin County and extends northward into Sonoma and Napa Counties and eastward to Solano County. With some exceptions, this region is quite affluent, and is generally the least urbanized part of the Bay Area, with many areas of undeveloped park and farmland. It is the only section of the Bay Area that is not served by a commuter rail transit service, though Sonoma-Marin service has entered the planning phase. The lack of transportation services is mainly because the lack of population mass in the North Bay, and the fact that it is separated completely from the rest of the Bay Area by water, the only access points being the Golden Gate Bridge leading to

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 6

	San Francisco, the Richmond-San Rafael and Carquinez Bridges leading to Richmond, and the Benicia Bridge leading to Concord.
Geography	The large land area and highly diversified physical features of the Bay Area compose one of the most varied environments in the United States, and support a wide range of land uses and living environments. The dominant influence of the area’s climate is the San Francisco Bay, which moderates the temperatures in the coastal areas, while inland climates that are further removed from the Bay’s influence experience a wide range of temperatures. Rainfall averages 25 inches per year and generally falls from November through March. January is the coldest month and the average daily high temperature is 55 degrees Fahrenheit; the average daily low temperature is 45 degrees Fahrenheit. September, one of the warmest months, averages a daily high of 68 degrees Fahrenheit.
	The most powerful geographical influence is exerted by the fault zones that lace the region. In 1989, the Loma Prieta earthquake caused heavy damage along the Bay Area Peninsula as well as the East Bay. This earthquake was the most serious one to occur since 1906. Most infrastructure damaged by the earthquake has been repaired. Other physical damage, including collapsed and unsafe buildings, has generally also been repaired. Despite the physical damage caused by the earthquake, the economy of the region suffered no significant long-term damage.
Transportation	The Bay Area is served by many public transportation systems, including three international airports (SFO, OAK, SJC), six overlapping bus transit agencies, four rapid transit and regional rail systems including BART, and multiple public ferry services.
	The freeway and highway system is very extensive; however, many freeways are heavily congested during rush hour, especially the trans-bay bridges.
	The Bay Area’s transportation infrastructure includes 1,500 miles of highway, eight toll bridges, 17,000 miles of local streets, six public ports, five passenger ferries, and five commercial airports. Transportation in the Bay Area is diversified because of the trend toward decentralized work places. More and more people are commuting longer distances to work, putting a heavy burden on the region’s transportation network. Air transportation is available through a number of airports in the Bay Area. San Francisco International Airport, located in San Mateo County, is one of the most active commercial airports in the world and it is served by over 62 airlines. Furthermore, a two billion-dollar airport expansion was completed which expanded international travel capabilities. Additionally, Oakland International Airport in Alameda County, and Mineta San Jose International Airport in Santa Clara County offer facilities for international travel, air taxi, charter and cargo.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 7

	The Bay Area Rapid Transit system (BART), a high-speed rail system with over 75 miles of track, is a major commuter transportation system which links stations in Alameda, Contra Costa, San Mateo and San Francisco counties. BART has been extended to the San Francisco International Airport, which coincided with the aforementioned airport expansion. CalTrans operates commuter trains that travel from San Jose to San Francisco. There are freight rail lines in many Bay Area communities.
Governmental Forces	Historically, ongoing efforts to improve the roads and public transit systems in the Bay Area have lagged behind growth in the population. Traffic congestion, considered a major problem in the Bay Area, makes close in, conveniently accessed locations particularly desirable. The Bay Area is comprised of nine separate counties. Each county has its own government, with incorporated cities within each county also having their own government. Between the city and county levels, interaction is limited. On a regional level, this concept is magnified, with limited inter-county planning. Local city and county governments within the region implement land use policies through the use of zoning laws and general plans. Support services, such as transportation, schools, health care, police, and fire protection are provided by local governments.
Education	California’s land use and growth controls are among the most stringent in the United States. These local land use controls include zoning, growth management systems, subdivision regulations, development fees and environmental restrictions. These policies raise the cost and reduce the volume of land development, especially in coastal metropolitan areas. Within the Bay Area there are over 80 public and private colleges and universities; among them are over 30 community colleges, four California State University campuses, and two University of California campuses.
Population	Population trends affect employment, retail spending, housing, bank deposits, and many other essential demand parameters analyzed in determining real estate productivity. Population growth, stability, or decline is a strong indicator of real estate viability within an area. The mild climate of the Bay Area has played an important role in development, and contributes to a desirable living environment. During the 1960s and 1970s, the regional population grew at an average annualized rate of 1.9%. During the 1980s, the population grew by approximately 1.4% per year.
	Population growth during the period from 2000 through 2015 is projected at approximately 0.9% annually. The slowing in the rate of population growth reflects the diminishing supply of available land and the high cost of housing in the area.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 8

The following table depicts the historical population growth trends of the nine counties comprising the greater San Francisco Bay Area illustrating the growth issues discussed.

BAY AREA HISTORICAL POPULATION GROWTH

County	2000		2001		2002		2003		2004		2005		2006
Alameda		1,438,264		1,462,900		1,484,700		1,487,700		1,496,968		1,500,228		1,510,303
Contra Costa		946,258		965,100		980,900		992,700		1,008,944		1,019,101		1,029,377
Marin		246,334		248,100		248,500		249,800		251,330		251,820		253,341
Napa		124,094		126,600		128,100		130,100		131,837		132,990		134,444
San Francisco		775,004		785,700		789,100		789,700		793,403		792,952		798,680
San Mateo		706,274		712,400		714,400		709,200		718,993		719,655		724,104
Santa Clara		1,679,243		1,697,800		1,716,800		1,719,500		1,740,699		1,752,653		1,773,258
Solano		391,666		398,600		405,600		412,200		417,447		420,307		422,848
Sonoma		457,316		464,300		468,600		469,500		474,993		477,697		479,929
Total Population		6,766,453		6,863,501		6,938,702		6,962,403		7,036,618		7,069,408		7,128,290

Source: California Department of Finance, dates as of Jan. 1
	San Francisco is the focal point of the San Francisco Bay Area. With an estimated population of over seven million, the San Jose-San Francisco-Oakland Combined Statistical Area is the sixth-largest consolidated metropolitan area in the United States. The highest rates of growth are projected in Solano and Santa Clara counties. Santa Clara County is the Bay Area Center for the technology industry. While population growth is expected to be substantial, it will still occur at a rate that is far slower than the growth in Southern California or many other portions of the state. The Bay Area has some of the highest housing costs in the nation. When the comparison is made between household income and housing costs, the Bay Area remains one of the least affordable areas in the nation.
Growth Controls	Further exacerbating the limited supply of new construction are political constraints based on the Bay Area’s public opinion favoring anti-growth. Municipalities in the Bay Area have enacted strict growth controls in response to loosely controlled development from the 1950s through the 1970s. Although the City of San Francisco is singled out for its actions, the region’s history of restrictions dates from early rent control laws passed by the City of Berkeley.
	The City of San Francisco leads the anti-growth campaign as witnessed by the 1984 voter approved Downtown Plan, and subsequent Proposition “M”. Along with growth controls and design approval, the Downtown Plan established priorities for land use regarding preservation of retailing, neighborhood character, cultural and ethnic diversity, affordable housing, mass transit, parking, enhancement of a diverse economic base, preparedness for earthquakes, landmarks, historic buildings, parks and open space.
	Since 1997, other communities, including Walnut Creek, Concord and Pleasant Hill in Contra Costa County, have adopted growth controls to protect open space and curb development. Almost all municipalities

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 9

	impose impact fees on new construction, such as office-housing linkage fees, traffic and public benefit fees, such as for childcare. Communities have financed infrastructure through assessment districts. While these assessments strengthen communities’ fiscal condition, they also add to occupancy costs and the cost of holding land.
	Such legislated impediments to growth benefit existing owners, but the long run effects of strict controls are debatable. Severe long-term real estate supply and demand imbalances can force occupancy costs to levels that negatively impact business growth and diminish the availability of affordable labor; again suggesting accelerated growth in outlying Bay Area communities.
Economic	Historically, San Francisco has been the financial and business center of the western United States. Beginning in late-1994 and early-1995, the strengthening high technology and computer-related industries located in the southern Bay Area began to lead the state out of its deep recession. In the second half of the 1990s, the local economy was driven by the growth in technology, particularly Internet, software, and other computer-related technology ventures. The technological advances during the mid- to late- 1990s, coupled with a strong stock market and nearly limitless availability of capital provided an environment for surging employment growth, real estate values, and overall prosperity in the region. The explosion of the so-called dot.com industry, funded primarily from venture capital, fueled an economic boom in Bay Area in the late 1990’s and early 2000 of unprecedented proportion. As a result, every aspect of the real estate market experienced huge gains.
	Commercial and industrial vacancy rates became almost non-existent while lease rates doubled in some instances during this period. While sale prices never matched the increase in rents, there was significant appreciation of commercial and industrial property sales prices. Apartment availability also became extremely tight with rents climbing 30% to 40%. Home prices surged as well, appreciation was in the neighborhood of 25% to 35% in this short time period. During this time a new market phenomenon also sprung out of the disparity between demand and supply of homes. Realtors began the practice of listing prices slightly below their market values to entice bidding wars. It thus became the accepted market practice to bid over the listing price, often substantially above the listing price.
	In March 2001 the tech-heavy NASDAQ declined due to concerns of over-inflated stock prices as negative reports about company profitability and news about declining demand for computer related goods and services surfaced. The Dow Jones quickly followed and entire stock market, including non-tech blue-chip stocks, also tumbled. This trend continued further into 2001. As a result of the stock market tumble, both the national and local economies contracted. The stock market tumble was compounded by the September 11, 2001 terrorist attacks on the

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 10

	World Trade Center and the Pentagon. The risk of air piracy, attacks on large landmarks, bio-terrorism and other threats to public safety has raised the level of uncertainty in the markets. It has also severely impacted the travel and tourism business, which rely heavily on air travel.
	Technology based companies were particularly impacted by the stock market decline. The Bay Area, which is generally regarded as being top-heavy in the technology sector, suffered considerably. Many of the newer and more financially sensitive companies went out of business, while the larger and more established companies, such as Cisco Systems, Hewlett- Packard and Oracle, had significant layoffs in attempt to weather the storm. Unemployment rates have been on a declining trend since 2002.
	Recent information regarding national and local economic recoveries indicates that a recovery started to take place in 2004, and is continuing in 2006.
Income and Spending	The San Francisco Bay Area represents over one quarter of the California market and over 3% of the national market in terms of income and spending, according to the CCSCE. The Bay Area is the wealthiest region in the nation of comparable size. In 2000, per capita income in the region was 50% above the national average and average household income was 65% above the national average and both will continue to grow faster than the national average. The region is projected to remain the nation’s wealthiest area of more than one million people throughout the next decade.
Metropolitan Division	The Office of Management and Budget (OMB) has produced a formal definition of metropolitan areas. These are referred to as “Metropolitan Statistical Areas” (MSAs) and “Combined Statistical Areas.” As of June 2003, there is now an additional classification, that of a “Metropolitan Division.” The term metropolitan division is used to refer to a county or group of closely-tied contiguous counties that serve as a distinct employment region within a metropolitan statistical area that has a population core of at least 2.5 million. While a metropolitan division is a subdivision of a larger metropolitan statistical area, it often functions as a distinct social, economic, and cultural area within the larger region.
	San Francisco-Oakland-Fremont Metropolitan Area (MA) is comprised of the San Francisco-Oakland-Fremont and San Francisco-San Mateo-Redwood City Metropolitan Divisions (MD). As of July 1, 2005 the San Francisco-Oakland-Fremont MA had a population of 4,152,688. The Oakland-Fremont-Hayward MD and San Francisco-San Mateo-Redwood City MD had populations of 2,466,692 and 1,685,996, respectively. The subject in located in the San Francisco-San Mateo-Redwood City MD.
Employment	Employment affects the real estate market since an overall increase in total employment translates into more space utilized for office

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 11

employees, more retail space to sell goods and services, and more money flowing through the area economy. For example, if sectors such as Finance/Insurance/Real Estate, Services and Miscellaneous, and Government, which typically consist of white-collar jobs, experience an increase in employment, this would in turn help support the office and retail real estate markets.

The following table illustrates the historical employment status of the San Francisco-San Mateo-Redwood City Metro Metropolitan Division between 2000 to 2005.

HISTORICAL EMPLOYMENT

	Labor						Unemployment
Year	Force		Employment		Unemployment		Rate
2000		1,012,300		980,800		31,500		3.1	%
2001		1,002,200		958,200		44,000		4.4	%
2002		965,000		904,900		60,100		6.2	%
2003		934,500		876,300		58,200		6.2	%
2004		916,800		867,700		49,100		5.4	%
2005		914,200		871,900		42,300		4.6	%

Bureau of Labor Statistics

The follow table depicts the monthly employment status of the employment status of the San Francisco-San Mateo-Redwood City Metro Metropolitan Division for 2006. As illustrated, the area’s unemployment rate continues to improve

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 12

HISTORICAL EMPLOYMENT — 2006

	Labor						Unemployment
Period	Force		Employment		Unemployment		Rate
Jan		1,264,108		1,206,272		57,836		4.6
Feb		1,258,874		1,200,609		58,265		4.6
Mar		1,259,172		1,203,595		55,577		4.4
Apr		1,255,252		1,201,481		53,771		4.3
May		1,255,651		1,204,135		51,516		4.1
Jun		1,265,617		1,206,419		59,198		4.7
Jul		1,277,137		1,216,846		60,291		4.7
Aug		1,265,926		1,209,364		56,562		4.5
Sep		1,268,807		1,215,902		52,905		4.2
Oct		1,277,193		1,227,449		49,744		3.9

Bureau of Labor Statistics

The unemployment rate in the San Francisco-San Mateo-Redwood City MD was 3.5 percent in October 2006, down from 3.8 percent in September 2006, and below the year-ago estimate of 4.4 percent. This compares with an unadjusted unemployment rate of 4.2 percent for California and 4.1 percent for the nation during the same period. The unemployment rate was 3.1 percent in Marin County, 3.8 percent in San Francisco County, and 3.3 percent in San Mateo Count

The following table depicts current employment of the San Francisco-San Mateo-Redwood City MD by sector.

EMPLOYMENT BY SECTOR

	October		%
Industry	2006		of Total
Natural Resources and Mining		200		0.02	%
Construction		45,100		4.69	%
Manufacturing		44,900		4.67	%
Trade, Transportation and Utilities		164,800		17.12	%
Information		39,200		4.07	%
Financial Activities		89,200		9.27	%
Professional and Business Services		188,300		19.57	%
Educational and Health Services		101,800		10.58	%
Leisure and Hospitality		121,700		12.65	%
Other Services		37,900		3.94	%
Government		129,500		13.46	%
TOTAL NONFARM		962,400		100.00	%

As indicated, the largest employment sector is of the work force is Professional and Business Services and Educational and Health Services followed by Trade, Transportation and Utilities with approximately 17% for the total Non-farm labor force.

Job Growth

The South Bay region is growing at a measured pace. Employment is expanding at around 5,000 jobs per month. Job growth in construction has slowed considerably from the year ago period, reflecting a decrease in residential construction due to a slowdown in residential for-sale housing. In contrast, two other sectors have started to grow. Leisure and The transition from a housing related job growth economy to a broader based economy is one factor that is driving rent growth.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 13

The following table is a presentation of historical industry employment within the San Francisco-San Mateo-Redwood City MD.

HISTORICAL EMPLOYMENT BY INDUSTRY

San Francisco-San Mateo-Redwood City MD

							% Change									% Change
	September		October				(9/06 to			October		October				10/05 to
Industry	2006		2006		Change		10/06)			2005		2006		Change		10/06
Total Jobs		965,500		970,300		4,800		-0.50	%		952,900		970,300		17,400		1.31	%
Farm Jobs		2,900		2,800		-100		3.45	%		2,700		2,800		100		6.90	%
Nonfarm Jobs		962,600		967,500		4,900		-0.51	%		950,200		967,500		17,300		1.29	%
Natural Resources and Mining		200		200		0		0.00	%		200		200		0		0.00	%
Construction		45,100		44,800		-300		0.67	%		42,800		44,800		2,000		5.10	%
Manufacturing		44,900		45,200		300		-0.67	%		43,500		45,200		1,700		3.12	%
Trade, Transportation and Utilities		164,800		166,000		1,200		-0.73	%		164,000		166,000		2,000		0.49	%
Information		39,200		39,200		0		0.00	%		40,700		39,200		-1,500		-3.83	%
Financial Activities		89,200		89,200		0		0.00	%		88,100		89,200		1,100		1.23	%
Professional and Business Services		188,300		188,800		500		-0.27	%		183,600		188,800		5,200		2.50	%
Educational and Health Services		101,800		103,100		1,300		-1.28	%		101,500		103,100		1,600		0.29	%
Leisure and Hospitality		121,700		121,000		-700		0.58	%		117,800		121,000		3,200		3.20	%
Other Services		37,900		38,100		200		-0.53	%		37,400		38,100		700		1.32	%
Government		129,500		131,900		2,400		-1.85	%		130,600		131,900		1,300		-0.85	%

Between September 2006 and October 2006, the total number of jobs in the counties of Marin, San Francisco and San Mateo expanded by 4,800 to reach 970,300 jobs. That gain was several times larger than the average September-to-October increase of 1,100 jobs for 1990 through 2005.

For the fourth consecutive month, the area registered a better job situation over the month than the average for the prior 16 years. Most major industries posted larger job gains between September and October than typical. Government added 2,400 jobs over the month as local and state public schools continued to expand seasonally. Education and health services increased employment by 1,300 jobs, largely as a result of seasonal additions at private schools. Trade, transportation and utilities expanded by 1,200 jobs over the month; its better than typical gain resulted from job additions in retail trade, in large part due to the opening of the expanded Westfield San Francisco Centre. Leisure and hospitality saw a smaller-than-usual seasonal job decline (down 700 jobs).

Between October 2005 and October 2006, industry employment in the South Bay counties rose by 17,400 jobs, or 1.8 percent. The metropolitan area has posted a net job gain on a year over basis for 19 consecutive months. Professional and business services led the job growth with an increase of 5,200 jobs from last year, mostly in professional, scientific and technical services (up 3,600 jobs). Leisure and hospitality expanded by 3,200 jobs, mostly in food services. Trade, transportation and utilities, as well as construction, each posted gains of 2,000 jobs. Information experienced the only employment loss, with its 1,500-job reduction

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 14

	concentrated in telecommunications. Hospitality is growing at approximately 3% year-over-year.
Conclusion	The nine-county San Francisco Bay Area is one of the nation’s most vital economic regions. While San Francisco remains the center of the region, the surrounding counties have developed economic centers of their own. Future projections by ABAG indicate increased growth in population and employment, albeit at a slower rate. Employment growth is expected to occur primarily in the service sector. Locational advantages, outstanding higher educational facilities, and a skilled labor force benefit the Bay Area. However, structural problems including affordable housing, transportation capacity, and water and sewer capacity, along with local slow growth initiatives, could impair the region’s competitive position. However, the economic base is well diversified, and should provide for moderate future growth in the Bay Area.
	The Bay Area’s economy has shifted towards service orientation. Agriculture, construction, and manufacturing have become less dominant while trade, finance, government, and business, professional and other services have grown in prominence. The one notable exception to this trend has been the high technology sector, particularly computer-related, and manufacturing.
	The long term future of California real estate appears good due to anticipated job growth which is expected to generate demand for additional office, industrial, and retail space. The expected increase in population indicates a strengthening housing market and growing retail demand.

NEIGHBORHOOD OVERVIEW

Location:	The subject property is situated in the southern sector of the City of San Mateo. The subject property is located at 203 Laurie Meadows Drive, approximately two mile south of the San Mateo urban center. San Mateo is situated in the region of the San Francisco Bay Area known as “The Peninsula”. The Peninsula, used on its own, refers locally to only the parts south of, and excluding, the city of San Francisco. It is roughly equivalent to San Mateo County.
	San Mateo is one of the larger suburbs on the San Francisco Peninsula, located between Burlingame to the north, Foster City to the East, and Belmont to the south. The subject property is accessible to neighborhood services and employment centers. The location of the subject property is rated as good.
Access:	The east side of the peninsula is a densely populated area that includes Silicon Valley. It forms a commuter area between San Francisco to the

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 15

	north and San Jose to the south. A number of major thoroughfares run North-South: El Camino Real (CA-82) and Highway 101 on the east side along the bay, Interstate 280 down the center, Skyline Boulevard (CA-35) along the crest of the Santa Cruz Mountains, and Highway 1 on the west along the Pacific.
	Three bridges, the Dumbarton Bridge, the San Mateo-Hayward Bridge, and the San Francisco-Oakland Bay Bridge cross San Francisco Bay from the peninsula.
	Primary access to the subject property and neighborhood is achieved from El Camino Real (CA-82) and Highway 101 via Hillside Boulevard or Ralston Avenue. Employment centers are easily accessible from the subject neighborhood due to the presence of regional transportation routes in the area. Traffic flow is well managed along the heavier traveled neighborhood streets with traffic signals at major intersections. Public facilities including schools and medical facilities are in close proximity.
Land Use:	The subject neighborhood is a mature and established commercial and residential district. The area realized much of its growth from the 1960s through the 1980s. Most of the apartments in the area were built in the 1970s. Approximately 95% of the land area is developed with limited land available to accommodate additional development. Multifamily development is prevalent along El Camino Real and east of Highway 101.
	El Camino Real is primarily developed with commercial uses including a moderated concentration of free-standing retail and general business buildings, all of which benefit from visibility and proximity to the regional transportation routes. Residential uses are located throughout the area along neighborhood roads that feed into the major collector streets. The predominate land use in the neighborhood is residential, consisting of both single and multifamily developments.
Adjacent Land Uses:	South:       Single-family residential
	North:       Single-family residential
	East:         Single-family residential
	West:        Multifamily residential
New Construction:	Due to the limited availability of vacant land suitable for development, there has not been a significant amount of new construction in the immediate vicinity of the subject property.
	New development in the area includes the re-development of the Bay Meadows racetrack in Central San Mateo. In November 2005 the San Mateo City Council approved plans a housing and commercial development that led to the demolition of Bay Meadows racetrack. Bay

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 16

	Meadows Land Co. begun to built town homes, offices, and retail stores on an adjoining tract of land.
	Other than the Bay Meadows racetrack project, no new residential (apartment and single-family homes) construction was noted in the area. Much of the new apartment development has and is occurring in outlying Bay Area locations were there exists sufficient vacant land to accommodate larger scale developments.
Change in Current Use	The neighborhood can be classified as being in the growth stage, approaching the stability stage, of its life cycle. As a result of its good location in the San Francisco Peninsula, growth in the area is anticipated to continue, in the form of new development on vacant and underutilized sites.
Conclusion	The property is located in the south sector of San Mateo, on the San Francisco Peninsula. The area is afforded with good accessible to other areas of San Francisco Bay Area and employment centers. As a result of its good location, the area has proven to be a desirable residential and commercial location. The area’s accessibility to employment centers has enhanced the desirability of the neighborhood as a residential location. Future prospects for the area are considered to be positive.

SITE ANALYSIS

Location	The site is located in the southern sector of the City of San Mateo, less than one-half mile east of Pacific Boulevard along the north side of Laurie Meadow Drive.
Size	The site is irregular in shape and consists of a total land area of 15.00 acres.
Excess Land	None
Topography	Generally level and on grade with the bounding street
Site Improvements	The 15.00-acre site is improved with a 418-unit garden-style apartment community known as the Scotchollow Apartments. See Description of the Improvements section of this report for details concerning site improvements.
Street Improvements	Laurie Meadow Drive provides access to the subject via three curb-cuts along the north side of this secondary thoroughfare. Laurie Meadow Drive is a two-lane, bi-directional collector street generally oriented in a east/west direction. Pacific Boulevard runs along the east side of the Southern Pacific Railroad. El Camino Real (CA-82) runs along the west side of the Southern Pacific Railroad. Access from El Camino Real (CA-

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 17

	82) to Laurie Meadow Drive is provided via railroad crossings at Hillside Boulevard, 42nd Avenue and Ralston Avenue.
Desirability of Location	Good
Access to Major Arteries	Good
Access to Local Arteries	Good
Curb Appeal	Good
Ingress/Egress	Average — Adequate road frontage along Laurie Meadow Drive.
Visibility from Road	Average
Public Transportation	Average
Neighborhood Appearance	Average
Flood Zone Map	According to the Federal Emergency Management Agency, the property is within Zone X, outside any special Flood Hazard Areas (Map No. 060328-0006B, Dated 10/19/2001).
Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical access and utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Land Use Restrictions	The appraisers are unaware of any deed restrictions which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property which would disclose any land use restrictions which may exist.
Utilities	All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site.
Police and Fire Protection	Provided to the site by the City of San Mateo
Conclusion	The subject represents a desirable site for multifamily development.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 18

REAL ESTATE TAXES

Assessor’s Parcel No:	040-350-490
	040-350-500
	040-350-510
	040-350-520
	040-350-530
	040-350-540
	040-350-550
	San Mateo County Assessor’s Office
Ad ValoremTax rate	Composite Rate 1.42 per $100 of assessed value (2006-2007)
Equalization Rate	100%
Payment Due Date	Taxes are payable in two equal installments, which become delinquent after December 10 and April 10, respectively.
2006-2007 Assessed Value	$30,768,784
Tax Analysis:	In California, privately held real property is typically assessed at 100 percent of full cash value (which is interpreted to mean market value of the fee simple estate) as determined by the County Assessor. Generally, a reassessment occurs only when a property is sold (or transferred) or when new construction occurs (as differentiated from replacing existing construction). Assessments for properties that were acquired before the tax year 1975-1976 were stabilized as of the tax year 1975-1976. Property taxes are limited by state law to 1% of the assessed value plus voter-approved obligations and special assessments. If no sale (or transfer) occurs or no new building takes place, assessments may no increase by more than 2% annually.
	Based on the current tax rate and market value concluded for the subject property in this report, the subject’s estimated tax liability is calculated in the table below.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 19

REAL ESTATE TAX CALCULATION

Assessor’s Market Value	2006/2007			Concluded Value
040-350-490	$	3,448,476
040-350-500	$	6,525,370
040-350-510	$	5,886,207
040-350-520	$	6,867,249
040-350-530	$	6,525,370
040-350-540	$	1,352,623
040-350-550	$	163,489
Subtotal	$	30,768,784		$	67,800,000
Assessed Value @		100	%		100	%
	$	30,768,784		$	67,800,000
Composite Rate (per $100 A.V.)		1.42			1.42
Total Taxes	$	436,917		$	962,760

Estimated Tax Liability	$962,760, or $963,000 rounded
Conclusion	The Composite Rate includes the published tax rate and the effective tax rate due to special assessments for county and municipal water standby charges. These charges are generally based on lot area rather than assessed value.
	The taxes estimated in our analysis are for the subject property assuming a sale at the current market value. If the subject were to sell, a reassessment at that value would most likely occur, with tax increases limited to two percent annually thereafter until the property is sold again. The consequences of this reassessment have been considered in the appropriate valuation sections.
	In accordance with California’s Proposition 13, our estimate of property taxes reflects the assumption of a fee transfer of the subject property. The stabilized property taxes indicated on the summary chart are based on the concluded value by the direct capitalization analysis.

ZONING

Zoning:	The site is zoned R3 District — Multiple Family Dwellings (Medium Density) by the City of San Mateo. This is a medium density multifamily district located in certain areas close to the center of the city and various outlying areas
Permitted Use	This zoning designation is intended to provide locations for medium density multifamily development. The area regulations are designed to protect the residential character of the area and to prevent overcrowding by providing minimum standards for building spacing, yards, off-street parking and coverage. Commercial, industrial, office and retail uses are not allowed.
Guidelines	The City’s Zoning Code controls the location, size, and height of structures such as buildings, garages, and fences. The Zoning Code is

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 20

	intended to protect city residents, their homes and businesses from conflicting activities nearby.
Comments:	The Official Website for the City of San Mateo Municipal Codes Online is http://www.cityofsanmateo.org/dept/codes/ch27-22.html. It appears that the existing improvements represent a use that conforms to local zoning requirements.

DESCRIPTION OF IMPROVEMENTS

The subject improvements consist of a 418-unit garden-style apartment complex known as the Scotchollow Apartments. The following offers a description of the improvements.

KTR Site Inspector:	Jackson L. Aills
Date of Inspection:	November 15, 2006
Property Contact:	On-site Manager
Year Built:	1971
Number Units:	418
Configuration/Stories:	Garden-style complex, 2- and 3-story residential structures. There are 27 residential structures and one clubhouse/leasing office. Six of residential structures are 3-story buildings with below ground parking, elevators and interior entrances.
Net Rentable Area:	324,335 square feet
EXTERIOR
Foundations:	Reinforced concrete slabs, on grade
Frame:	Wood frame
Exterior Walls:	Stucco and wood trim veneer
Roof:	Pitched with asphalt single covers
Doors and Windows:	Exterior entrance doors are hollow core metal. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames.
HVAC:	Ground mounted electric AC condensing units, electric heat
Plumbing:	Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet and sink and bathtub/shower combinations. Hot water is provided by central gas-fired boilers.
Electrical:	Property is sub-metered for electric and water. Electric and water is paid by the tenant.
Parking and Walkways:	The parking areas and internal roadways are concrete paved. The streets and parking areas have concrete curbs. Walkways are concrete paved. There is adequate on-site parking provided, including enclosed garages and underground parking in six of the residential buildings.
INTERIOR
Walls and Ceilings:	Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface.
Floors:	Interior floors are carpet over padding in living areas and bedrooms with sheet vinyl in the kitchens and bathroom.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 21

Kitchen Equipment:	Built-in wood cabinets with laminate counter tops and stainless steel sink. Appliances include a combination range/oven, microwave oven with exhaust fan, disposal, dishwasher and refrigerator/freezer.
PROJECT AMENITIES
Security:	No
Swimming Pool:	Yes (2); 1 heated all year round
Fitness Center:	Yes, 1 spa/whirlpool
Clubroom:	Yes
Tennis Court:	Yes (2)
On-site Management Office:	Yes
Laundry Room:	Yes (4)
Microwave:	No
Compactor:	No
Fireplace:	In selected units
Ceiling Fans:	Yes
Cable TV:	Yes – free basic cable
Balconies/Patios:	Yes
Perimeter Fencing:	Yes/Partial
Access Controlled Entry:	No
Other:	Landscaping includes a vine-covered trellis, water features, mature trees and manicured shrubs

The following chart illustrates the property’s unit breakdown and size.

SCOTCHOLLOW APARTMENTS – UNIT MIX

Unit Type	Mix		Size (SF)		Total Area
1BR/1BA		37		504		18,648
1BR/1BA		33		524		17,292
1BR/1BA		74		714		52,836
1BR/1BA		146		754		110,084
2BR/1BA		45		895		40,275
2BR/2BA		62		1,000		62,000
2BR/1.5BA		20		1,100		22,000
3BR/2BA		1		1,200		1,200
Totals/Average		418		776		324,335

CONDITION/MAINTENANCE

Overall Condition:	Average
Landscaping:	Average
Parking:	Adequate
Sidewalks/Curbs:	Average
Walls/Fences:	Average
Refuse Area:	Average
Basement:	N/A
Health Club:	Average
Club Room:	Average
Exterior Walls:	Average
Roofs:	Average

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 22

Stairs:	Average
Lobby/Hallways:	N/A
Entry Doors:	Average
Patios/Balconies:	Average
Elevators:	N/A
Apartment Interiors:
Overall:	Average
Kitchen Equipment:	Average
Mechanical Equipment:	Average
Bathroom:	Average
Walls/Ceilings:	Average
Layout:	Average
Light and View Quality:	Average
Cosmetic Repairs:	Our physical inspection revealed that the subject property is in average condition.
Deferred Maintenance:	No material elements of deferred maintenance were noted during the appraiser’s inspection of the property.
Comparability:	Similar to competing properties of the same vintage.
Observed Effective Age:	30 years (the actual age of the improvements is 35 years)
Economic Life:	45 years (per Marshall Valuation Service Manuel)
Remaining Economic Life:	15 years
General Comments:	The owners completed approximately $1,071,000 in capital expenditures at Scotchollow during 2005, consisting primarily of structural and swimming pool improvements, parking lot upgrades, major landscaping improvements, floor covering replacement, electrical breaker replacements, gutter and balcony replacements, replacement of exterior light fixtures, plumbing fixture and water and sewer upgrades. These improvements were funded from operating cash flow, replacement reserves, insurance proceeds and advances from an affiliate of the Managing General Partner. The current owner regularly evaluates the capital improvement needs of the property during the year and only necessary capital improvements are being made during 2006 in order to maintain occupancy at the property.
	Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 23

APARTMENT MARKET OVERVIEW

The following apartment market analysis is designed to provide the reader an understanding of the Bay Area apartment market and the local submarket within which the subject property competes. The most recent source of data available to the appraisers was the Apartment Market Report for Northern California (3^rd Quarter 2006) published by Hendricks and Partners.

Overview	Economic opportunity and the generally high quality of life continue to support consistent population growth throughout California. According to the Association of Bay Area Governments, Bay Area population dynamics are predicted to follow a similar pattern as prior years: adding new jobs, residents, and new households over the next 20 years. Due to a scarcity of developable land and a restrictive permitting process, supply of new housing has failed to keep pace. Supply will likely remain inadequate in the future.
	While single-family home prices continue to surge in most of the area, especially throughout of Southern California, home prices in Bay Area experienced a mix of increasing and decreasing values. The county’s excellent climate and strong economy, and proximity to several major employment centers throughout the Bay Area should continue to attract in-migration over the long term, and contribute to a continued strong demand for housing.
South Bay	The subject property is situated in the City of San Mateo in the “South Bay” area of the greater San Francisco Bay area. Job growth is boosting demand for local apartments. The South Bay region is growing at a measured pace. The apartment market continues to show improvement in the South Bay as little new inventory is added and employment expands.
Supply / New Construction	No new apartment units were completed in the third quarter of 2006. Developers were issued multifamily permits (condo & apartment) for 829 multifamily units during the quarter. A total 2,374 multifamily units were permitted in the first three quarters of 2006, which was down 19% from the first three quarters of 2005. A total of 2,938 multifamily units were permitted in 2005. A significant portion of permitting activity was for new condominium development.
Demand / Absorption	Demand in the third quarter measured 423 apartment units, indicating that developers are seeing increased demand on the horizon. That trend will likely continue into 2007. As of the 3rd Quarter 2006, year-to-date absorption totals 869 apartment units. Comparatively, demand for the 2nd quarter measured 303 apartment units. The 3rd quarter was the seventh straight quarter of positive absorption.
Vacancy	The South Bay’s average apartment vacancy rate fell to 3.6% in the third quarter. That was down from 4.5% in the year-ago period. As illustrated in the following table, the Northwest Valley submarket again had the lowest vacancy rate of 2.2%. The subject’s San Mateo County submarket reported

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 24

a vacancy factor of 3.8% for the 3^rd Quarter 2006, down from 5.0% reported for 3^rd Quarter 2005.

2006 THIRD QUARTER VACANCY & RENT – SOUTH BAY

	Vacancy						Avg. Rent Increase						Average Rent
Submarkets	2006			2005			2006			2005			2006		2005
Northwest Valley		2.20	%		2.90	%		8.10	%		2.50	%	$	1,435	$	1,327
East Valley		2.50	%		3.60	%		7.60	%		-3.80	%	$	1,277	$	1,187
North/Northeast Valley		5.80	%		6.10	%		7.60	%		2.80	%	$	1,471	$	1,367
South Valley		3.70	%		4.40	%		6.90	%		-0.90	%	$	1,227	$	1,148
West Valley		3.30	%		3.90	%		9.90	%		1.40	%	$	1,674	$	1,523
Central San Jose		3.20	%		5.00	%		7.40	%		1.70	%	$	1,243	$	1,157
Monterey County		2.80	%		4.20	%		0.80	%		2.00	%	$	1,097	$	1,088
San Mateo County		3.80	%		5.00	%		9.50	%		2.30	%	$	1,513	$	1,382
Totals		3.60	%		4.50	%		7.50	%		1.80	%	$	1,383	$	1,287

Rent Rates	Market rents peaked in 2001 and rapidly decreased until flattening out in mid-2004 as a result of the slow recovery of the local economy. Average year-over-year rent growth for the South Bay region continued to surge, and measured 7.5% in the third quarter of 2006. Comparatively, the average year-over-year rent growth during the second quarter of 2006 was 6.5% for the South Bay region. Monterey County was the only laggard, with average rent growth measuring only 0.8%. Every other submarket had recorded gains of 6.9% or higher. The subject’s San Mateo County submarket reported rental increases of 9.5% for the year.
	The average monthly apartment rent for the subject’s San Mateo County submarket was $1,513 in the third quarter 2006, a $131 increase from the same period 2005 of $1,382.
Forecast	An improving local economy is supporting rental demand in the South Bay area, prompting rent increases that are higher than at any time since the technology bubble popped.
	The outlook for the remainder of the year in the San Francisco Peninsula apartment market remains strong, with the market well positioned to continue current trends into next year. As vacancy continues to steadily decline we expect increases in asking rates to continue. In addition, the apartment market will continue to benefit from high housing costs in the region.
	Demand for apartments will remain solid in 2007, lifting the median price per unit to pre-2000 levels. The growing economy will spur some household formation but it will be tempered by the high cost of housing relative to income. As a consequence of these countervailing factors, Hendricks and Partners expect rent growth to be solid but not spectacular in 2007. The dominant trends will be a surge in Class A rents fuelled by job growth in the high-tech sector and absorption of Class C units by youn gentry-level workers. As these two effects are combined, the average rent growth will be 3.5% in 2007.

Scotchollow Apartments	December 8, 2006
San Mateo, California	Page 25

Micromarket Overview The appraisers surveyed five competitive properties in the immediate vicinity of the subject property. These properties are outlined in detail in the forthcoming Economic Rent Analysis section of this report. The occupancy levels reported for these properties range from 93% to 100% as presented in the following chart. The weighted average occupancy of the sampling surveyed equates to 96%. Due to high occupancy, concessions are rare. However, few area apartments of offers concessions typically consist of reduced or free rent over a portion of the lease term.

SUMMARY OF COMPETITIVE PROPERTIES

								Average Unit		Average		Average
Property Name	No. of Units		Occupancy			YOC		Size (SF)		Rent		Rent / SF
Lake Pine		288		93	%		1971		787	$	1,436	$	1.82
Creekside		190		97	%		1985		749	$	1,494	$	1.99
Archstone San Mateo		575		94	%		2001		1,012	$	2,329	$	2.30
Lakeshore Landing		308		98	%		1975		712	$	1,453	$	2.04
Crestview		220		100	%		1968		883	$	1,219	$	1.38
Totals/Weighted Average		1,581		96	%		1980		863	$	1,741	$	2.02

Appeal to Market:

The subject property has a tenant profile similar to other properties of similar vintage in the area. Its presentation, condition, appearance and rental rate structure are all within market parameters. No adverse conditions are evident which would effect its future competitive position.

Conclusion

The South Bay economy is entering a growth cycle after recovering from the dotcom bust. Apartment properties in the San Francisco South Bay Area have enjoyed increasing market rents and declining vacancies. With very little new inventory added, the overall vacancy factor has moved steadily downward from 2004 and early 2005 levels. Rental rate have held steady over the past couple of years, but began to shown significant improvement beginning in 2005 and continue to improve. Overall, economic conditions appear to be stabilizing and poised for gradual recovery. This bodes well for apartment market conditions in the longer term. As economic conditions improve, demand for rental housing should follow suit.

ECONOMIC RENT ANALYSIS

Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 26

Rent Comparable #1

Name/Address:	Lake Pines 3014 Los Prados San Mateo, CA 94403
Number of Units:	288
Year Built:	1971

Description:	Garden-style apartments with two and three-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include walk-in closets, refrigerator, carpeting, balcony, deck, patio, ceiling fan, dishwasher, cable ready, high speed internet (available), microwave, garbage disposal and furnished units (available). Community features include, detached garage, controlled access, clubhouse, covered parking, handicap access, pool, tennis court, playground, laundry room, fitness center, business center, extra storage units and elevator.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		563	$	1,105	$	1.96
1BR/1BA		680	$	1,244	$	1.83
2BR/1BA		880	$	1,425	$	1.62
3BR/1BA		1,025	$	1,969	$	1.92
Totals/Average		787	$	1,436	$	1.82

Landlord Provides:	Water, sewer and trash removal
Occupancy	93%
Concessions:	None
Comments:	This garden-style apartment complex offers comparable one, two and three-bedroom units. It is located northeast of subject near Los Prados Park. This comparable is similar to the subject property in terms of location and amenities and physical characteristics.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 27

Rent Comparable #2

Name/Address:	Creekside 1600 E. Third Avenue San Mateo, CA 94401
Number of Units:	190
Year Built:	1985
Description:	Garden-style apartments with two and three-story residential buildings. Brick exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area.
Amenities:	Apartment features include walk-in closets, refrigerator, cable ready, high speed internet (available), washer and dryer in unit, dishwasher, furnished units (available), ceiling fan, carpeting, balcony, deck, patio. Community features include attached garage, spa/hot tub, extra storage units, laundry room, detached garage, fitness center, covered parking, pool, clubhouse and assigned parking.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		600	$	1,149	$	1.92
1BR/1BA		646	$	1,205	$	1.87
1BR/1BA		712	$	1,420	$	1.99
2BR/1BA		808	$	1,650	$	2.04
2BR/2BA		850	$	1,730	$	2.04
2BR/2BA		875	$	1,809	$	2.07
Totals/Average		749	$	1,494	$	1.99

Landlord Provides:	Water, sewer and trash removal
Occupancy:	97%
Concessions:	None
Comments:	The Creekside Apartments are located east of downtown San Mateo, across US 101. This property is similar to the subject property in terms of location, amenities and appeal.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 28

Rent Comparable #3

Name/Address:	Archstone San Mateo (formerly Jefferson at Bay Meadows) 1101 Park Place San Mateo, CA 94403
Number of Units:	575
Year Built:	2001
Description:	Three-story residential apartment buildings with stucco exteriors and covered parking.
Amenities:	Apartment features include, fireplace, hardwood floors, ceiling fan, dishwasher, cable ready, high speed internet available, walk-in closets, vaulted ceiling, microwave, garbage disposal, yard, air conditioning, washer and dryer in unit, intrusion alarm available, refrigerator, carpeting, balcony, deck and patio. Community features include pool, controlled access, playground, assigned parking, spa/hot tub, business center, extra storage units, elevator, fitness center, clubhouse and covered parking.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		651	$	1,730	$	2.66
1BR/1BA		1,003	$	1,795	$	1.79
1BR/1BA		1,066	$	1,885	$	1.77
2BR/1BA		1,367	$	2,215	$	1.62
2BR/2BA		1,384	$	2,215	$	1.60
2BR/2BA		713	$	2,275	$	3.19
2BR/2BA		809	$	2,490	$	3.08
3BR/2BA		939	$	3,185	$	3.39
3BR3BA		1,177	$	3,170	$	2.69
Totals/Average		1,012	$	2,329	$	2.30

Landlord Provides:	Water, sewer and trash removal
Occupancy:	94%
Concessions:	None
Comments:	This property is situated within a master-planned community near downtown San Mateo that includes retail and several restaurants. This comparable is superior to the subject property in terms of amenities, age and condition and overall appeal. Reportedly, 361 units will be converting to condominiums.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 29

Rent Comparable #4

Address:	Lakeshore Landing 2717 S. Norfolk St. San Mateo, Ca 94403
Number of Units:	308
Year Built:	+/- 1975
Description:	Garden-style apartments with two-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include fireplace, vaulted ceiling, garbage disposal, balcony, deck, patio, walk-in closets, refrigerator, carpeting, high speed Internet (available), washer and dryer in unit, dishwasher and cable ready. Community features include pool, controlled access, elevator, spa/hot tub, covered parking, fitness center and laundry room.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		570	$	1,185	$	2.08
1BR/1BA		619	$	1,245	$	2.01
1BR/1BA		653	$	1,335	$	2.04
1BR/1BA		672	$	1,550	$	2.31
2BR/2BA		858	$	1,675	$	1.95
2BR/2BA		899	$	1,725	$	1.92
Totals/Average		712	$	1,453	$	2.04

Landlord Provides:	Water, sewer and trash removal
Occupancy:	98%
Concessions:	None
Comments:	The property has good access to SH 101. Cats are accepted, but not dogs. This comparable is similar to the subject property in terms of location, physical characterizes and amenities.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 30

Rent Comparable #5

Address:	Crestview Apartments  510 Crest View Avenue Belmont, Ca 94002
Number of Units:	220
Year Built:	+/- 1968
Description:	Garden-style apartments with two-story residential buildings, stucco and wood siding exterior walls and pitched roof with composition shingle cover and asphalt-paved parking.
Amenities:	Apartment features include, vaulted ceiling, balcony, patio, walk-in closets, refrigerator, dishwasher and cable ready. Community features include two pools, covered parking, clubhouse and laundry facilities.
Rental Data:

Unit Type	Size (SF)		Quoted Rent/Unit		Quoted Rent/SF
1BR/1BA		573	$	900	$	1.57
1BR/1BA		867	$	1,175	$	1.36
2BR/2BA		1,030	$	1,375	$	1.33
2BR/2BA		1,061	$	1,425	$	1.34
Totals/Average		883	$	1,219	$	1.38

Landlord Provides:	Water, sewer and trash removal
Occupancy:	100%
Concessions:	None
Comments:	The property has good access to SH 101 and SH 280 and is within walking distance to public transportation. Cats are accepted, but not dogs. Overall, this comparable is inferior to the subject property in terms of age, location and amenities.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 31

ANALYSIS

The subject property is situated in a good location along Laurie Meadows Drive, approximately two miles south of the San Mateo urban center with good access to primary transportation arteries. It is competitive with other properties in terms of location, condition, amenities, and unit size. The tables below illustrate the comparables with the most similar floor plans in relation to the subject’s floor plans.

ONE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject	504	$1,199	$2.38
Subject	524	$1,304	$2.49
Subject	714	$1,339	$1.88
Subject	754	$1,441	$1.91
Lake Pine	563 - 680	$1,150 - $1,244	$1.83 - $2.04
Creekside	600 - 712	$1,149 - $1,420	$1.87 - $1.99
Archstone San Mateo	651 - 1,066	$1,730 - $1,885	$1.77 - $2.66
Lakeshore Landing	570 - 672	$1,185 - $1,550	$2.01 - $2.31
Crestview	573 - 867	$900 - $1,175	$1.36 - $1.57

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject	895	$1,804	$2.02
Subject	1,000	$1,904	$1.90
Subject	1,100	$1,965	$1.79
Lake Pine	880	$1,425	$1.62
Creekside	808 - 875	$1,650 - $1,809	$2.04 - $2.07
Archstone San Mateo	713 - 1,384	$2,215 - $2,490	$1.60 - $3.19
Lakeshore Landing	858 - 899	$1,675 - $1,725	$1.92 - $1.95
Crestview	1,030 - 1,061	$1,375 - $1,425	$1.33 - $1.34

THREE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject	1,200	$2,109	$1.76
Lake Pine	1,025	$3,170	$3.09
Archstone San Mateo	939 - 1,177	$3,170 - $3,185	$2.76 - $3.45

The subject is most similar to Lake Pines, Lakeshore Landing and Creekside. These properties are rated as being generally similar to the subject. Archstone San Mateo is a new property, which is superior to the subject in term of overall, appeal and condition. Crestview is an older property located south of the subject. Although is good locational characteristics, it is rated as being inferior to the subject overall. In general, the subject’s rental rates should be similar to the rents illustrated by Lake Pines, Lakeshore Landing and Creekside; below the rents illustrated by Archstone San Mateo and above the rents illustrated by Crestview.

As indicated above, the rent for the subject’s one and two bedroom floor plans are within a tolerable variance of the range of rents illustrated by Lake Pines, Lakeshore Landing and Creekside, the properties rated as being most similar. The subject offers one three-bedroom unit. Only two properties offer three bedroom units: Lake Pines and Archstone San Mateo. While Lake Pines was rated as being similar, conversations with the on-site manager indicated that this unit is typically marketed as a two-bedroom unit. As such, the rental rates indicated by the bonafide two-bedroom units represent the best indicator for this unit.

The subject’s rental rate structure is appropriately aligned with the rents illustrated by Lake Pines, Lakeshore Landing and Creekside; below the rents illustrated by Archstone San Mateo and above the rents illustrated by Crestview. Based on a review of market rental data, the subject’s quoted rent structure

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 32

appears reasonable. Furthermore, review of the subject’s rent roll indicates that recent leases have been executed at the quoted rates, confirming market acceptance of the quoted amounts.

Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property’s economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property.

ECONOMIC RENT POTENTIAL-SCOTCHOLLOW APARTMENTS

Unit Type	Mix		Size (SF)		Total Area		Economic Rent/Unit		Economic Rent/SF		Total Rent
1BR/1BA		37		504		18,648	$	1,199	$	2.38	$	44,363
1BR/1BA		33		524		17,292	$	1,304	$	2.49	$	43,032
1BR/1BA		74		714		52,836	$	1,339	$	1.88	$	99,086
1BR/1BA		146		754		110,084	$	1,441	$	1.91	$	210,386
2BR/1BA		45		895		40,275	$	1,804	$	2.02	$	81,180
2BR/2BA		62		1,000		62,000	$	1,904	$	1.90	$	118,048
2BR/1.5BA		20		1,100		22,000	$	1,965	$	1.79	$	39,300
3BR/2BA		1		1,200		1,200	$	2,109	$	1.76	$	2,109
Totals/Average		418		776		324,335	$	1,525	$	1.97	$	637,504

HIGHEST AND BEST USE

HIGHEST AND BEST USE AS IF VACANT

Surrounding Land Uses	Predominately residential developments with multifamily to west of the subject.
Physically Possible	Being situated on a neighborhood collector street in close proximity to El Camino Real (CA-82) and Highway 101, the subject site benefits from good accessibility. Residential use would benefit from the site’s exposure and accessibility to other parts of San Mateo.
Legally Permissible	Multifamily use is the intended use of the site.
Financial Feasible	Due to growth controls and the limited availability of vacant land suitable for development, there has not been a significant amount of new construction in the immediate vicinity of the subject property. Much of the new apartment development has and is occurring in outlying Bay Area locations were there exists sufficient vacant land to accommodate larger scale developments.
	However, economic conditions in the area are strong and demand for multifamily housing appear strong as evidenced by high occupancy rates and increasing rents in exiting units. The preceding suggests that sufficient entrepreneurial profit incentive is being met to justify the financial feasibility of new construction.
Conclusion	New multifamily development.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 33

HIGHEST AND BEST USE AS IMPROVED

Current Improvements	418-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant.
Conclusion	Continued use of the existing improvements

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition.

The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the San Francisco Bay Area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 34

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income which is then capitalized at an interest rate, or investment yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Revenue: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $637,504. The annual gross rent potential estimated for the apartment units total $7,650,048.

Loss to Lease: Loss to lease considers a loss in income due to leases in effect, whereby effective rental rates are lower than asking, or market, rental rates. As a percentage of the property’s gross rent potential, the historical loss to lease ranges from 0.2% in 2003 to 8.8% in 2006 (October 2006 year-to-date, annualized). Based on the most recent history at the subject property, we have deducted a loss to lease expense of 8.0% of the potential gross income or $612,004.

Concessions: Rent concessions in the market are utilized in an attempt to bolster occupancy at area apartments. Concessions usually consist of reduced or free rent over a portion of the lease term. There was an increasing trend in concessions between 2002 and 2005. As of year-to-day 2006, concessions

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 35

declined and presented themselves at 2.0% of the property’s gross rent potential. Based on the operating history at the subject, concessions are projected at 2.0% of the estimated gross rent potential or $153,001.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 98.6% occupied. Properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 93% to 100%. Information presented in the Apartment Market Overview section of this report indicates that the average vacancy within the subject’s San Mateo County apartment submarket was 3.8% for the 3^rd Quarter 2006, down from 5.0% reported for 3^rd Quarter 2005.

Based on the subject’s historical and current level of occupancy, tempered against the weighted average occupancy reported by competing properties in the influencing area and occupancy level indicated by similar vintage properties in the San Mateo County submarket, a vacancy factor of 3.5% is estimated for the subject property. In addition, a 0.5% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 4.0%.

Utility Income: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Utility reimbursements were $239, $234 and $328 per unit, respectively. The annualized October year-to-date 2006 reimbursements equates to $411 per unit. Based on the historical trends, we have estimated Utility Income to be $156,750, or $375 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property’s gross rent potential, Other Income receipts range from 2.8% to 5.6%. Based on historical other income receipts, we have estimated Other Income to be 3.5% of the gross rent potential or $267,752.

Expenses: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed. Typical operating expenses for garden apartments in the San Francisco Bay Area, as reported by IREM have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property including year-end figures for 2003, 2004 and 2005 and year-to-date figures for 2006 through October. The year-to-date 2006 figures have been annualized for analytical purposes.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 36

SUMMARY OF OPERATING HISTORY AND BUDGET — SCOTCHOLLOW APARTMENTS

	2003						2004							2005						2006 YTD
Item	Actual			Per Unit				Actual			Per Unit				Actual			Per Unit			Actual			Annualized			Per Unit
Gross Rent Potential	$	6,743,824		$	16,134			$	6,891,244		$	16,486			$	6,576,862		$	15,734		$	6,020,620		$	7,224,744		$	17,284
Loss to Lease	$	(15,700	)	$	(38	)		$	(252,041	)	$	(603	)		$	(136,847	)	$	(327	)	$	(529,208	)	$	(635,050	)	$	(1,519	)
Concessions	$	(161,676	)	$	(387	)		$	(404,007	)	$	(967	)		$	(479,849	)	$	(1,148	)	$	(119,413	)	$	(143,296	)	$	(343	)
Vacancy/Credit Loss	$	(760,088	)	$	(1,818	)		$	(1,286,370	)	$	(3,077	)		$	(450,921	)	$	(1,079	)	$	(222,875	)	$	(267,450	)	$	(640	)
Utility Income	$	100,041		$	239			$	98,001		$	234			$	137,071		$	328		$	153,594		$	184,313		$	441
Other Income	$	375,245		$	898			$	$286,920		$	686			$	343,947		$	823		$	169,830		$	203,796		$	488
Effective Gross Income	$	6,281,646		$	15,028			$	5,333,747		$	12,760			$	5,990,263		$	14,331		$	5,472,548		$	6,567,058		$	15,711
Utilities	$	316,599		$	757			$	$317,479		$	760			$	308,623		$	738		$	263,269		$	315,923		$	756
Repairs & Maintenance	$	535,212		$	1,280			$	$643,033		$	1,538			$	484,904		$	1,160		$	387,526		$	465,031		$	1,113
Administrative	$	346,310		$	828			$	$186,524		$	446			$	188,508		$	451		$	131,066		$	157,279		$	376
Marketing	$	100,473		$	240			$	$104,775		$	251			$	131,910		$	316		$	106,433		$	127,720		$	306
Payroll	$	276,501		$	661			$	$477,396		$	1,142			$	625,047		$	1,495		$	401,847		$	482,216		$	1,154
Management	$	245,331		$	587			$	$184,694		$	442			$	210,047		$	503		$	214,383		$	257,260		$	615
Insurance	$	264,239		$	632			$	$255,622		$	612			$	236,727		$	566		$	241,284		$	289,541		$	693
Real Estate Taxes	$	385,770		$	923			$	$397,763		$	952			$	405,574		$	970		$	342,985		$	411,582		$	985
Total Expenses	$	2,470,435		$	5,910			$	2,567,286		$	6,142			$	2,591,340		$	6,199		$	2,088,793		$	2,506,552		$	5,997
Net Operating Income	$	3,811,211		$	9,118			$	2,766,461		$	6,618			$	3,398,923		$	8,131		$	3,383,755		$	4,060,506		$	9,714

Utilities	This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject property’s 2003, 2004 and 2005 utilities expenses were $757, $760 and $738 per unit, respectively. The annualized year-to-date 2006 expense equates to $756 per unit. Based on historical expenditures, utilities are processed at $760 per unit or $317,680.
Repair & Maintenance:	This category includes general repair and maintenance items, contract services and turnover expenses. The subject’s historical repair and maintenance expense for 2003, 2004 and 2005 were $1,280, $1,538 and $1,160 per unit, respectively. The annualized year-to-date 2006 expense equates to $1,113 per unit. The repairs and maintenance expense is estimated at $1,200 per unit or $501,600.
Administrative	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject’s historical administrative expense for 2003, 2004 and 2005 were $828, $446 and $451 per unit, respectively. The annualized year-to-date 2006 expense equates to $376 per unit. Based on 2004 and 2005 historical amounts, administrative expenses are projected at $167,700, or $400 per unit.
Marketing	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject’s historical marketing expense for 2003, 2004 and 2005 were $240, $251 and $316 per unit, respectively. The annualized year-to-date 2006 expense equates to $306 per unit. Marketing expenses are projected at $125,400, or $300 per unit.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 37

Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject’s historical payroll expense has been somewhat sporadic. The Payroll expense for 2003, 2004 and 2005 were $661, $1,142 and $1,495 per unit, respectively. The annualized year-to-date 2006 expense equates to $1,154 per unit. Payroll expenses are projected at $501,600, or $1,200 per unit.
Management	A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject’s historical management fee has been based on an amount equivalent to approximately 4.3% to 4.5% of Effective Gross Income. A market-oriented fee of 4.0% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject’s management fee is estimated to be $280,142, or $670 per unit.
Insurance	This expense item covers the building and includes fire, extended coverage, vehicle, and owner’s liability. The subject’s historical insurance expense for 2003, 2004 and 2005 were $632, $612 and $566 per unit, respectively. The annualized year-to-date 2006 expense equates to $693 per unit. Insurance expenses are projected at $271,700, or $650 per unit.
Taxes	As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $963,000, or $2,304 per unit.
Reserves for Replacements	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $400 per unit. Considering the age of the subject property, a reserve for replacement allowance of $350 per unit or $146,300 is estimated for the subject property.
Total Expenses	Total expenses have been estimated at $3,274,622, or 47% of effective income. Information provided by the Institute of Real Estate Management (IREM) indicates that expense ratios for apartment complexes in the subject’s region (Region IV) range from 41.0% to 35.6%, with an average of 47.4%, exclusive of a reserve allowance. The total operating expenses projected for the subject property falls within this range. Industry standard expense data suggests that the total expenses estimated for the subject property are reasonable.

Net Operating Income: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provide a return on owner’s equity. We have estimated the NOI to be $3,728,921. The subject’s income and expense pro forma is summarized below.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 38

VALUATION PRO FORMA

Item	Total			Per Unit
Gross Rent Potential	$	7,650,048		$	18,302
Loss to Lease	$	(612,004	)	$	(1,464	)
Concessions	$	(153,001	)	$	(366	)
Vacancy/Credit Loss	$	(306,002	)	$	(732	)
Utility Income	$	156,750		$	375
Other Income	$	267,752		$	641
Effective Gross Income	$	7,003,543		$	16,755
Utilities	$	317,680		$	760
Repairs & Maintenance	$	501,600		$	1,200
Administrative	$	167,200		$	400
Marketing	$	125,400		$	300
Payroll	$	501,600		$	1,200
Management	$	280,142		$	670
Insurance	$	271,700		$	650
Real Estate Taxes	$	963,000		$	2,304
Reserves	$	146,300		$	350
Total Expenses	$	3,274,622		$	7,834
Net Operating Income	$	3,728,921		$	8,921

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer	Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.
Market Extraction	The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach.

SUMMARY OF MARKET DERIVED OVERALL RATES

Name	Pacifica Park	Townsquare	Lake Pines	Bay Terrace	Lands End
Sale Date	August 2006	January 2006	November 2005	October 2005	June 2005
Year Built	1977	1971	1971	1963	1980
Cap Rate (OAR)	5.9%	5.6%	5.2%	5.3%	5.9%

The sales exhibit overall rates that range from 5.3% to 5.9% and produce an average of 5.6%. The sales represent recent transactions of late 1970s and early- to mid-1980s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are situated in San Francisco

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 39

	Bay Area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate in the range of approximately 5.0% to 6.0% is suggested.
Survey of Investors	The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the 3rd Quarter 2006 Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. Capitalization rates in the San Francisco Bay Area are generally aligned with the low end of the national survey range and below the national average.
Conclusion	The sales exhibit overall rates that range from 4.9% to 6.2% and produce an average of 5.5%. Based on the indicators exhibited by the sales data, an appropriate cap rate for the subject property is concluded to be in the range of 5.0% to 6.0%. A rate of 5.5% is processed for valuation purposes.
Valuation:	Capitalizing the estimated Net Operating Income of $3,728,921 by a 5.5% rate results in a value conclusion of $67,800,000, rounded ($3,728,921 NOI ÷ 5.5% OAR = $67,798,564).
Final Value:	$67,800,000

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 40

SALES COMPARISON APPROACH

The Sales Comparison Approach is an estimate of value derived from a sales comparison with similar type properties. This method directly reflects the actions of buyers and sellers in the marketplace. Substitution is the underlying principle affecting the choice of buyers and sellers, and which implies that a prudent person will not pay more to buy a property than it would cost to buy a comparable substitute property. The price a typical purchaser pays is usually the result of a comparison process of various alternatives.

The sales data is analyzed and compared to the subject for such items as time, location, size, amenities and condition. Adjustments for differences are made where appropriate and so indicated by the market. The process develops an indication of what the selected comparables would have sold for had they possessed all the relevant physical and economic characteristics of the property being appraised. After analysis, the indicators derived are correlated into a value estimate based upon the quality of information obtained and the logical conclusions of the appraiser.

The local market has been active in terms of investment sales of similar properties. Adequate sales exist to formulate a defensible value for the subject property via sales comparison. The following table is a summary of the comparable sales, which are further detailed in the Addenda of this report.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 41

SUMMARY OF COMPARABLE BUILDING SALES

Sale No.	1	2	3	4	5
Name	Pacifica Park Apartments	Townsquare Apartments	Lake Pines	Bay Terrace Apartments	Lands End Apartments
Location	670 Hickey Blvd	509 Poplar Ave	3014 Los Prados	3204 Casa De Campo	100 Esplanade Ave
	Pacifica, CA 94044	Millbrae, CA 94030	San Mateo, CA	San Mateo, CA 94403	Pacifica, CA 94044
Sales Price	$19,200,000	$25,000,000	$45,000,000	$23,300,000	$44,800,000
Sale Date	August 18, 2006	January 27, 2006	November 29, 2005	October 7, 2005	June 30, 2005
Year Built	1977	1971	1971	1963	1980
No. of Units	104	136	288	127	260
Net Rentable Area (SF)	91,360	114,440	180,576	107,850	161,572
Avg. Unit Size (SF)	878	841	627	849	621
Occupancy	97%	95%	98%	95%	95%
Price/SF	$210.16	$218.46	$249.20	$216.04	$277.28
Price/Unit	$184,615	$183,824	$156,250	$183,465	$172,308
Net Income	$1,131,852	$1,396,088	$2,346,486	$1,234,468	$2,643,020
NOI/SF	$12.39	$12.20	$12.99	$11.44	$16.36
NOI/Unit	$10,883	$10,265	$8,148	$9,720	$10,165
Cap Rate (OAR)	5.9%	5.6%	5.2%	5.3%	5.9%
EGIM	11.1	11.6	10.4	11.0	11.0
Expense Ratio (OER)	34.6%	35.0%	45.7%	41.7%	35.0%

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 42

ANALYSIS OF SALES

All of the comparables represent sales of apartments that are of similar construction componentry as the subject. All of the sales are of the same general vintage as the subject property and generally similar in terms of physical condition. Situated in throughout the South Bay Area, minor differences exist as to the specific location of each comparable and subject property.

Comparable #1:	This is the August 2006 sale of a 104-unit garden apartment complex located approximately ten miles northwest of San Mateo in Pacifica. The complex is in close proximity of San Francisco and the Pacific Ocean with good access to Highway 1 and I-280. In addition, the property has convenient access to local shopping, dining and entertainment. The location of the comparable property is rated as being superior to that of the subject property.
	The complex was built in 1977 and consists of 27 two-story wood framed buildings with pitched composite shingle roofs. The exteriors are wood shingle and stucco. The community is comprised of 26 buildings containing 40 one bedroom — and 60 two bedroom units. This property has a net rentable area of 91,360 square feet and an average unit size of 878 square feet. The property was in average physical condition at time of sale. This complex offers two and three-bedroom floor plans. Amenities 200 covered parking spaces, include standard kitchen appliances, fireplace, laundry, refrigerator and storage lockers.
	In comparison to the subject, this property is superior in terms of location and amenities. In terms of age and condition it is considered superior. As such, downward adjustments of 10% and 5% were applied for location and age/condition, respectively. Its average unit size is larger and required a downward adjustment.
Comparable #2:	This transaction represents the January 2006 sale of a 136-unit apartment located approximately five miles north of the subject in Millbrae. The complex is in close proximity of the San Francisco International Airport and Highway 101. The location of the comparable property is rated as being superior to that of the subject property.
	Built in 1971, this property consists of 11 two-story buildings with stucco exteriors and pitched composition shingle roofs. This property has a net rentable area of 114,440 square feet, suggesting an average unit size of 841 square feet. The property was in average physical condition at time of sale. This complex offers one and two-bedroom floor plans. Amenities include a swimming pool, laundry facility and on-site management office/clubhouse. Unit amenities include standard kitchen appliances, fireplaces, patios/balconies, walk-in closets and mini-blinds. It is in walking distance to a major shopping center and recreation center/library. The police and fire station is across the street.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 43

	This property is inferior to the subject in terms of location, age and condition and amenities. Its average unit size of 841 square feet is larger than the subject’s and required a downward adjustment.
Comparable #3:	This is the November 2005 sale of a 288-unit garden-style apartment (Rent Comparable No. 1) located less than two miles northeast of the subject property. The location of the comparable property is rated as being similar to that of the subject property. Built in 1971, the complex consists of six three-story apartment buildings and a clubhouse totaling 180,576 square feet on 8.9 acres. The unit mix includes 53 studios, 172 one-bedroom units, 60 two-bedroom units and three three-bedroom units. The average unit size is 627 square feet. Site amenities include a business center, pool, picnic area and direct access to Los Prados Neighborhood Park. The seller had initiated a capital improvement program on both the interior and exterior of the property. Reportedly, the buyer will continue to upgrade the property with additional improvements including new kitchens and baths. The property was in good physical condition at time of sale. The occupancy rate at closing was 98%.
	In comparison to the subject, this property is generally similar in terms of amenities and location. In terms of age and condition it is considered superior due to its recent renovation. As such, a downward adjustment of 5% was applied for age/condition. In addition, its average unit size is smaller and an upward adjustment was made for its inferior (smaller) average unit size.
Comparable #4:	This transaction represents the October 2005 sale of a 127-unit community located adjacent to Sale Comparable #3 (Pine Lake). The location of this comparable is rated as being similar to that of the subject. Bay Terrace is 100% townhomes, with two and three bedroom floor plans averaging 846 square feet per home. The occupancy rate at closing was 95%. The community, sitting on four acres of land, is located within close proximity of the 101 Freeway and Highway 92 with easy access to the major job markets in San Francisco, San Jose, and the East Bay. The buyers will upgrade the property with improvements including new kitchens and baths and believes it is a potential future condo conversion candidate. The property was in average physical condition at time of sale. Amenities include balcony/patio, ceiling fans, covered parking, standard kitchen appliances and storage lockers.
	In comparison to the subject, this property is generally similar in terms of age/condition, amenities and location. The buyers purchased the adjacent property (Pine Lakes) at the same time and expect to benefit from economies of scale recognizing the close proximity of the two properties. In addition, all of the units are townhome units and generally obtain higher rents than typical units. Additional downward adjustment was applied to Sale #4 to reflect the fact that all of it units are townhouse units which present as a potential future condo conversion candidate. As such, a downward adjustment of 10% was applied for utility.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 44

Comparable #5:	This is the June 2005 sale of a 260-unit apartment located approximately ten miles northwest of the subject in Pacifica. The complex is in close proximity of San Francisco and the Pacific Ocean with good access to Highway 1 and I-280. In addition, the property has convenient access to local shopping, dining and entertainment. The location of the comparable property is rated as being superior to that of the subject property. Built in 1980, this property consists of 11 two-story wood frame buildings with stucco exteriors. The buildings have pitched roofs with composition shingle covers. This property has a net rentable area of 161,572 feet and an average unit size of 621 square feet. The property was in average physical condition at time of sale. It offers various one and two-bedroom floor plans. Amenities include balcony, ceiling fan(s), standard kitchen appliance and 260 covered parking spaces. Reportedly buyer plans to completely renovate the property at a cost between $5 and $10 million.
	In comparison to the subject this property is superior in terms of location and was adjusted downward 10% for location. In terms of amenities it is similar. Due to its 1980 year of construction, its age/condition is rated as being superior. As such, it was adjusted downward 5% for this factor. Its average unit size of 690 square feet is smaller compared to the subject’s 776 square feet. As such, an upward adjustment was made to reflect its inferior (smaller) average unit size.
PRICE PER UNIT ANALYSIS
The comparables are examined utilizing the following criteria:
Financing:	The comparable sales were either all cash transactions or were financed by primary lenders at market-oriented rates. Adjustments are not required since a typical financing is not indicated.
Time:	The sales analyzed all occurred within the past 17 months. No material adjustment for changes in market conditions is required.
Location:	Adjustments are made for locational attributes including proximity to area employers, local transportation and access to local neighborhood services. The location of each sale is analyzed individually as it compares to the subject property’s location. Sales Nos. 3 and 4 are located in San Mateo and were rated as being similar to that of the subject. Sales Nos. 1, 2 and 5 are located in areas rated as superior to the subject and were adjusted downward for location Apartment market conditions in the subject’s location are considered strong as are the comparables.
Age/Condition:	Adjustments for age/physical condition were based on exterior observation, as well as the original date of construction.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 45

	In terms of age and condition Sale Nos.2 and 4 were rated as being similar to the subject and were not adjusted. As indicated in the previous discussion, Sale Nos.1, 3 and 5 were adjusted downward for having superior age/condition characteristics.
Unit Size/Utility:	The subject property has an average unit size of 776 square feet. Sale Nos. 1, 2 and 4 exhibit smaller average unit sizes, ranging from 841 to 878 square feet whereas Sale Nos. 3 and 5 exhibit larger average unit sizes. Typically, properties with larger average unit sizes command higher sale prices per unit. Conversely, properties with smaller average unit sizes sell for less. As such, each sale comparables was adjusted based on the average unit size of the respective properties in comparison to the subject property. Also the property’s total number of unit and utility was consideration in the adjustments. Sale Nos. 1, 2 and 4 also exhibited smaller property size and do not benefit from economies of scale. It is noted however, that Sale No. 4 was purchased in conjunction with Sale No. 3 and expects to benefit from its close proximity of the two properties. The additional downward adjustment to Sale No. 3 reflects it smaller average units size and the fact that all of it units are more desirable townhouse units which present it is a potential future condo conversion candidate.
Amenities:	The subject property is a 1971 vintage asset with standard community amenities and standard tenant amenities. Generally, all of the sales offer similar community and unit amenities. No adjustments to the sale price per unit were made for this factor.
	The following chart summarizes the adjustments considered for each of the factors described above.

COMPARABLE SALES ADJUSTMENT GRID

Comparable #	1			2			3			4			5
Sales Price/Unit	$	184,615		$	183,824		$	156,250		$	183,465		$	172,308
Conditions of Sale		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Adjusted Price	$	184,615		$	183,824		$	156,250		$	183,465		$	172,308
Time		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Time Adjusted Price	$	184,615		$	183,824		$	156,250		$	183,465		$	172,308
Location		-10.00	%		-10.00	%		0.00	%		0.00	%		-10.00	%
Age/Condition		-5.00	%		0.00	%		-5.00	%		0.00	%		-5.00	%
Unit Size/Utility		-5.00	%		-5.00	%		5.00	%		-10.00	%		5.00	%
Amenities		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Total Adjustments (%)		-20.00	%		-15.00	%		0.00	%		-10.00	%		-10.00	%
Adjusted Sale Price	$	147,692		$	156,250		$	156,250		$	165,119		$	155,077

Source: Adjustments by KTR.

Conclusion: The unadjusted sales prices range from $172,308 to $183,465 with an average of $176,092. After adjustments, the sales prices range from $155,077 to $156,250 per unit with an average of $156,078 per unit.

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 46

	None of the sales required a significant degree of adjustment and equal emphasis is placed on each in concluding to an appropriate value for the subject property. Based on the adjustments considered and indicators exhibited by the sales data, a value of $156,000 per unit is estimated for the subject property. Application of the $156,000 per unit value indicator to the 418 units comprising the subject property results in a value estimate of $65,200,000 (rounded).
	418 units x $156,000/unit = $65,208,000
EGIM ANALYSIS	As Illustrated in the write-ups of the comparable sales presented in the Addenda, the sales illustrate a range of Effective Gross Income Multipliers (EGIMs) from 10.4 to 11.6 with an average of 11.0.
	Important in selecting an appropriate EGIM is the review of corresponding operating expenses as there is an inverse relationship that generally holds among EGIMs and operating expenses. The sales data illustrates expense ratios that range from 35% to 46% with an average of 38%. The subject property’s operating expense ratio has been projected to be 47% based on the income and expense analysis presented in the Income Capitalization Approach section of this report, an amount that is higher than the average expense ratio exhibited by the comparables. The preceding would suggest that an appropriate EGIM for the subject property would be aligned with the low end of the range exhibited by the improved sales data under analysis. An EGIM of 10.0 is concluded for the subject property.
	Application of an EGIM of 10.0 to the effective gross income (EGI), which was estimated at $7,003,543, results in a value estimate of $70,000,000 (rd.) as follows.
	$7,003,543 x 10.0 = $70,035,430
Conclusion	The values produced by the price per unit and EGIM technique are $65,200,000 and $70,000,000. As indicated, the results of each valuation technique are somewhat similar, and vary by approximately 7%. With equal consideration given to each technique, a final value via the Sales Comparison Approach of $67,600,000 is concluded for the subject property.
	Based on the foregoing, the Market Value of the Fee Simple Interest in the subject property, as of November 16, 2006, is:

Value via the Sales Comparison Approach $ 67,600,000

RECONCILIATION

Scotchollow Apartments
San Mateo, California December 8, 2006
Page 47

Cost Approach		N/A
Income Capitalization Approach	$	67,800,000
Sales Comparison Approach	$	67,600,000

Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE $ 67,800,000

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

ADDENDA

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

SUBJECT PHOTOGRAPHS

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Subject Entrance

Clubhouse/Leasing Office

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Interior of Clubhouse/Leasing Office

Swimming Pool

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Tennis Court / Landscaping

Typical Two-Story Building

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Typical Three-Story Building

Typical Parking Stalls

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Interior of Typical Unit

Interior View of Typical Kitchen

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

COMPARABLE RENTAL PHOTOGRAPHS

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Rent Comparable #1 — Lake Pines

Rent Comparable #2 — Creekside

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Rent Comparable #3 — Archstone San Mateo

Rent Comparable #4 — Lakeshore Landing

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Rent Comparable #5 — Crestview Apartments

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

COMPARABLE SALE PHOTOGRAPHS

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Sale Comparable #1

Sale Comparable No. 2

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Sale Comparable #3

PHOTO NOT AVAILABLE

Sale Comparable #4

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

Sale Comparable #5

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

REGIONAL LOCATION MAP

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

NEIGHBORHOOD MAP

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

COMPARABLE RENTALS MAP

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

COMPARABLE SALES MAP

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

QUALIFICATIONS

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

STEVEN J. GOLDBERG, MAI, CCIM
SENIOR MANAGING DIRECTOR

STEVEN J. GOLDBERG is Manager of the Dallas Appraisal Division of KTR Newmark Real Estate Services LLC. His responsibilities include staff supervision, appraisal management, maintaining product quality, marketing and client development. In his current capacity, Mr. Goldberg oversees all valuation assignments involving real estate assets located in the Southwest region.

Mr. Goldberg has over 23 years of nationwide experience in real estate valuation, investment analysis and evaluation consultation. He has performed appraisals throughout the United States and has extensive experience in most markets situated in the Southwest and Southeast regions of the country. Mr. Goldberg’s particular area of expertise is in the appraisal and analysis of multifamily apartment projects. In addition to his expertise in the multifamily market, Mr. Goldberg has extensive experience in the appraisal of other income-producing properties including office buildings, retail properties, lodging facilities, industrial properties and mixed-use projects.

Mr. Goldberg has performed marketability, consultation and feasibility reports, has served as an expert witness and has testified in various state and federal courts. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors, law firms and governmental agencies.

Mr. Goldberg received his Bachelor of Business Administration Degree from the University of Texas in Austin, with major concentrations in both Finance and Real Estate/Urban Land Economics. He is a designated member of the Appraisal Institute and the Commercial Investment Real Estate Institute having been awarded the MAI designation in 1989 and the CCIM designation in 1994. He has attended numerous continuing education courses and has completed the requirements under the continuing education program of the Appraisal Institute.

Mr. Goldberg is state certified as a General Real Estate Appraiser in Texas and Arizona. He is also a licensed Real Estate Broker in the State of Texas. He is affiliated with the North Texas Commercial Association of Realtors, International Council of Shopping Centers and Mortgage Bankers Association.

Scotchollow Apartments
San Mateo, California December 8, 2006
Addenda

QUALIFICATIONS OF THE APPRAISER
JACKSON L. AILLS

Jackson L. Aills is certified as General Real Estate Appraiser in the State of Texas (TX-1331035-G). Mr. Aills has a Bachelor of Business Administration from the University of Mississippi and has attended numerous real estate education courses and seminars, including those offered by the Appraisal Institute.

Mr. Aills has been involved in real estate appraising since 1989. He currently holds the position of Senior Appraiser for the Dallas office of KTR Newmark Real Estate Services LLC, a New York based real estate firm.

Real estate appraisal assignments have been performed on a variety income producing properties throughout the United States. These activities have been performed on behalf of real estate investors, life insurance companies, pension funds, REITs, investment banking firms, foreign and domestic financial institutions, mortgage bankers, conduit lenders, real estate advisors and governmental agencies. The scope of his real estate assignments have included office buildings, industrial properties, multifamily projects, retail, hotels, proposed construction, special use properties, and raw land.

EX-99.(C)(22)

     

COMPLETE APPRAISAL

SUMMARY APPRAISAL REPORT OF

THE TOWERS OF WESTCHESTER PARK

COLLEGE PARK, MARYLAND 20740

PREPARED FOR:

VMS NATIONAL PROPERTIES JV
55 BEATTIE PLACE
GREENVILLE, SOUTH CAROLINA 29601

As of:

December 4, 2006

     

December 13, 2006

Ms. Martha Long
General Partner
VMS National Properties JV
55 Beattie Place
Greenville, South Carolina 29601

Re: Towers of Westchester Park
6200 Westchester Park Drive
College Park, Maryland 20740

Dear Ms. Long:

At your request, KTR Newmark Real Estate Services, LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Leased Fee Estate of the subject property, free and clear of financing, as of December 4, 2006.

The subject property consists of a 6.39-acre site improved with a 303-unit, 15-story high-rise apartment complex known as The Towers of Westchester Park. Construction of the improvements was reportedly completed in 1974. The property contains a mix of efficiency, one, two, and three-bedroom unit types, with an average unit size of 1,103 square feet. The property is surrounded to the north, east and south by wooded parkland. Quality and condition are above average.

The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach.

This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation not presented herein has been retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein.

Continued...

33 Wood Avenue South, Suite 600, Iselin, NJ 08830
TEL 732.321.4235 • FAX 732.321.6562
WWW. FIRSTAM. COM

Ms. Martha Long	December 8, 2006
VMS National Properties JV	Page 2

The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinion that the market value of the Leased Fee Estate of the subject property, as of December 4, 2006, was:

FORTY THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS

($43,800,000)

The market value estimate of $43,800,000 significantly exceeds the tax assessor’s market value estimate of $18,805,300. A representative of the county assessment office indicated that the subject is significantly under assessed, and that the subject’s assessment will likely increase by 50 to 60% in the upcoming year. In light of the preceding, we have assumed that the subject’s assessment will increase by 55% in the upcoming year. It is an extraordinary assumption of this appraisal that the subject’s actual real estate taxes do not differ significantly from our estimate.

It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations or conclusion.

Very truly yours,

KTR VALUATION & CONSULTING SERVICES, LLC

By:	John J. DeFoe, MAI	By:	Terence Tener, MAI
	Senior Managing Director		Chief Executive Officer
			Maryland Certification #10442

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page i

CERTIFICATE OF VALUE

We, Terence Tener, MAI and John J. DeFoe, MAI certify that to the best of our knowledge and belief:

The statements of fact contained in this appraisal are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in the property that is the subject property of this appraisal, and we have no personal interest or bias with respect to the parties involved.

Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event

Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, and Title XI (and amendments) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) effective August 9, 1990.

We have not made a personal inspection of the property that is the subject of this appraisal. Stephen C. Winchester inspected the subject and provided significant professional assistance in the gathering and analysis of subject, market, and comparable property information. No one else provided significant professional assistance in the completion of this appraisal.

This appraisal was not prepared in conjunction with a request for a specific value or a value within a given range or predicated upon loan approval.

We have the knowledge and experience necessary to perform this appraisal assignment and have previously appraised this type of property.

As of the date of this appraisal, we have completed the requirements under the continuing education program of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review its duly authorized representatives.

KTR VALUATION & CONSULTING SERVICES LLC

By:	John J. DeFoe, MAI	By:	Terence Tener, MAI
	Senior Managing Director		Chief Executive Officer
			Maryland Certification #10442

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page ii

BASIC ASSUMPTIONS AND LIMITING CONDITIONS

This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows:

The valuation estimates apply only to the property specifically identified and described in the ensuing Report.

Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value.

The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property.

It is assumed that all information known to the client and relative to the valuation has been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property.

Ownership and management are assumed to be competent and in responsible hands.

No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending.

Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed.

The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service.

By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose.

Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than by the party to whom it is addressed without the written consent of the appraiser, and in any event, only with proper written qualification and only in its entirety.

Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute.

Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page iii

potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property.

The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page iv

SUBJECT PROPERTY PHOTOGRAPH

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page v

LOCATION MAP

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page vi

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certificate of Value		i
Basic Assumptions and Limiting Conditions	ii
Subject Photograph	iv
Location Map		v
Table of Contents	vi
Executive Summary		1
Introduction and Premises of the Appraisal		2
Economic Overview		4
Site Analysis		8
Description of Improvements		11
Apartment Market Overview		13
Economic Rent Analysis		15
Highest and Best Use		22
Valuation Procedure		23
Income Capitalization Approach		24
Sales Comparison Approach		30
Reconciliation and Final Value Conclusion		32
ADDENDA
Additional Subject Photographs
Comparable Rental Photographs
Tax Map
Aerial Photograph
Appraiser Qualifications

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 1

EXECUTIVE SUMMARY

Property:	The Towers of Westchester Park
Location:	6200 Westchester Park Drive, College Park, Maryland 20740
Purpose of Appraisal:	To estimate the Market Value of the subject property as of the date of value.
Date of Value:	December 4, 2006
Date of Report:	December 13, 2006
Interest Appraised:	Leased Fee Estate
Description of Property:	The subject property consists of a 6.39-acre site improved with a 303-unit, 15 story high-rise apartment complex known as The Towers of Westchester Apartments. Construction of the improvements was reportedly completed in 1974. The property contains a mix of efficiency, one, two, and three-bedroom unit types, with an average unit size of 1,103 square feet. The property is surrounded to the north, east and south by wooded parkland. Quality and condition are above average.
Zoning:	The subject site is zoned R-10 (Multifamily High Density Residential) by Prince George’s County. The subject is a legal conforming use within the district.
Flood Zone:	According to the Prince George’s County officials, the property is located within Zone C, an area outside the 100- and 500-year flood plains. FEMA Map No. 245208-0030D, dated 9/6/96.
Highest and Best Use:	Multifamily high density residential.
Marketing Period:	Less than 12 months

Final Estimate of Market Value, by Approach
Cost Approach:	N/A
Sales Comparison Approach:	$43,600,000
Income Approach:	$43,800,000
Final Estimate of Market Value:	$43,800,000

The market value estimate of $43,800,000 significantly exceeds the tax assessor’s market value estimate of $18,805,300. A representative of the county assessment office indicated that the subject is significantly under assessed, and that the subject’s assessment will likely increase by 50 to 60% in the upcoming year. In light of the preceding, we have assumed that the subject’s assessment will increase by 55% in the upcoming year. It is an extraordinary assumption of this appraisal that the subject’s actual real estate taxes do not differ significantly from our estimate.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 2

INTRODUCTION AND PREMISES OF THE APPRAISAL

SCOPE OF THE ASSIGNMENT

According to the Appraisal Institute’s Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as “the extent of the process of collecting, confirming, and reporting data” included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses and conclusions are presented in summary report format.

The data included in this report has been researched from the subject property’s influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed.

PURPOSE AND USE OF APPRAISAL

The purpose of the appraisal is to estimate the market value of the leased fee estate in the subject property as of December 4, 2006. It is for the internal use of AIMCO to facilitate asset evaluation.

PROPERTY RIGHTS APPRAISED

The property interest appraised is that of the Leased Fee Estate. A Leased Fee Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as:

“An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor (the leased fee owner) and leased fee are specified by contract terms contained within the lease.”

MARKETING PERIOD

The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 3rd Quarter 2006, apartment properties in the national market have an average marketing time of 5.58 months, down from 5.74 months a year ago. This estimate seems reasonable, given the recent market activity and the subject profile.

PROPERTY HISTORY

The subject property is owned by VMS National Properties. The Towers of Westchester Apartments were originally built in 1974. No transfers of ownership were noted within the three-year period prior to the date of value. It is our understanding that the subject property is not listed for sale and we are not aware of any contracts of sale pending at this time.

MOST LIKELY BUYER

National and regional investors typically purchase multifamily properties of this size in markets such as the subject.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 3

DEFINITION OF MARKET VALUE

Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows:

“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1.	buyer and seller are typically motivated;
2.	both parties are well-informed or well advised, and acting in what they consider their best interests;
3.	a reasonable time is allowed for exposure in the open market;
4.	payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5.	the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 4

AREA ANALYSIS

OVERVIEW

The subject property is located in within the Washington DC Metropolitan Statistical Area (MSA). The Washington D.C. Metropolitan Statistical Area (MSA) together with Maryland’s Baltimore MSA comprises the Washington-Baltimore Consolidated Metropolitan Statistical Area (CMSA). This CMSA includes 32 jurisdictions combining the District of Columbia, 17 Virginia cities and counties, 12 Maryland cities and counties, and two West Virginia counties. In 1993, the City of Fredericksburg, along with Spotsylvania and King George Counties, was added to the Washington D.C. MSA.

POPULATION

Population trends affect employment, retail spending, housing, bank deposits, and many other essential demand parameters analyzed in determining real estate productivity. Population growth, stability, or decline is a strong indicator of real estate viability within an area. The following population and employment data represents historic trends of the counties that comprise the Washington D.C. MSA.

POPULATION – WASHINGTON D.C. MSA

							1990 – 2005
							Annual
County	1990		2000		2005		Growth Rate
District of Columbia		606,900		572,059		564,916		-0.46	%
Arlington		170,936		189,453		197,806		1.05	%
Clarke		12,101		12,652		13,572		0.81	%
Culpeper		27,791		34,262		40,035		2.94	%
Fairfax		818,505		969,749		1,036,578		1.78	%
Fauquier		48,741		55,139		63,225		1.98	%
King George		13,527		16,803		18,912		2.65	%
Loudoun		86,129		169,599		257,240		13.24	%
Prince William		215,686		280,813		445,822		7.11	%
Spotsylvania		57,403		90,395		115,420		6.74	%
Stafford		61,236		92,446		119,844		6.38	%
Warren		26,142		31,584		34,644		2.17	%
Calvert		51,372		74,563		88,436		4.81	%
Charles		101,154		120,546		138,516		2.46	%
Frederick		150,208		195,277		221,849		3.18	%
Montgomery		763,191		873,341		941,623		1.56	%
Prince Georges		723,104		801,515		846,665		1.14	%
Berkeley		59,253		75,905		88,773		3.32	%
Jefferson		35,926		42,190		47,963		2.23	%
Total MSA		4,029,305		4,698,291		5,281,839		2.07	%

As indicated, the counties of Loudoun, Prince William, Spotsylvania and Stafford realized the greatest annual population growth from 1990 to 2004. This demonstrates that the growth pattern of the MSA is between Fredericksburg and Washington D.C.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 5

DEMOGRAPHIC COMPOSITION

OF THE MSA POPULATION

<15 years		21.20	%
15-24 years		12.90	%
25-44 years		31.10	%
45-64 years		25.20	%
65> years		9.60	%
Median Age	36.1 years

Approximately 47.4% of the Washington DC MSA population had received at least a four-year college degree in 2000. The median household income in 2005 for the Washington DC MSA was $76,248.

EMPLOYMENT

Employment in the MSA has traditionally been dominated by government, trade and service oriented sectors that account for over two-thirds of the metropolitan employment. The U.S Bureau of Labor Statistics was consulted to determine the breakdown of employment by industry in the region. The following table provides this information:

EMPLOYMENT BY SECTOR — WASHINGTON DC MSA

	Number of		Percentage of			12-Month
Industry	Employees		Employment			Percent Change
Construction and Mining		141,400		6.02	%		5.10	%
Manufacturing		44,500		1.89	%		1.60	%
Trade, Transportation and Utilities		319,700		13.61	%		3.30	%
Information		90,600		3.86	%		-0.20	%
Financial Activities		115,100		4.90	%		0.70	%
Professional and Business Services		516,300		21.98	%		4.50	%
Educational and Health Services		243,600		10.37	%		2.80	%
Leisure and Hospitality		203,200		8.65	%		6.60	%
Other Services		139,000		5.92	%		3.70	%
Government		535,800		22.81	%		1.50	%
Total		2,349,200		100.00	%		3.20	%

Growth in the government sector has remained relatively stable over the last 10 years, while the other employment sectors continue to expand. In 1970, government employment (local, state and federal) accounted for almost 40 percent of the total jobs in the metropolitan area or twice as many as the service sector. In 1980, the Reagan Administration put a halt to government job growth, and by 1989, there were only 23,600 more government workers than in 1980. Currently, government employment accounts for 22.8% of all jobs. Conversely, the service segment continues to expand and now accounts for more than the government sector. The service sector is greatly influenced by a healthy tourist industry. The nation’s capital remains one of the largest tourist attractions in the country. Over 19,000,000 tourists visit Washington D.C. and the surrounding areas each year.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 6

Resulting from the historic stability of the Federal Government on the local economy, unemployment for the Washington D.C. MSA has traditionally been lower than that of the United States. The chart below, which includes agricultural employment, illustrates the employment status of Washington MSA in relation to the State and the United States.

EMPLOYMENT STATISTICS — JANUARY 2006

							Washington DC
	US			Maryland			MSA
Civilian Labor Force		150,114,000			2,945,104			2,897,900
No. Employed		143,074,000			2,825,542			2,897,126
No. Unemployed		7,040,000			119,562			87,700
Unemployment Rate		4.7	%		4.1	%		3.1	%

TRANSPORTATION

The Washington metropolitan area is a major destination on the Eastern Seaboard. It lies along the route of Interstate 95, which extends from southern Florida to northern Maine. Washington D.C. is surrounded by Interstate 495, which is known as the Capital Beltway. About 100 miles west of Interstate 95 is Interstate 81 also traversing the area in a roughly north-south orientation. Major westbound highways are Interstate 66 from Washington D.C. and Interstate 61 out of Richmond, Virginia.

Many major and secondary roadways in the Washington D.C. area as a whole are overburdened by traffic, especially during morning and evening “rush hours.” Development of high occupancy vehicle (HOV) lanes has alleviated the problem to some degree over the years. Local commuter transportation is a particular concern.

The College Park area affords easy access to major metropolitan areas on the east coast via Interstate 95. This major artery highway provides six lanes from north to south travel along the eastern seaboard. The subject property is less than one half mile southwest of Interstate 495/95 and one quarter mile south of Greenbelt Road (State Route 193).

MetroRail provides rail service to the District and the closer suburban areas. Land uses and property values have intensified and increased in the vicinity of Metro Stations. The area commuter has embraced the Metro System as a viable alternative to major traffic tie-ups. Service extends as far west as Vienna, Virginia, as far south as Franconia/Springfield and as far north as Shady Grove, Maryland. When complete, a total of 103 miles will be included in the system. Augmenting the Metro System, Amtrak and MART (Maryland Area Rapid Transit) provide access to intermediate and long-range destinations, including Baltimore, Maryland. As ridership increases, additional pressure may be taken off the highway system. Bus service (MetroBus) is also available throughout the region.

There are three major international airports in the Washington area. Baltimore-Washington International Airport is midway between Baltimore and Washington. The Ronald Reagan Washington National Airport is on the south side of the Potomac River in Alexandria near the downtown business district. It has long operated at capacity and was for many years the preferred destination and departure point due to its convenience to the downtown area. The third, Washington Dulles International Airport, is approximately 25 miles west of Washington in Loudoun County at the Fairfax County line. In addition to these three, Richmond International Airport is south of the subject property and offers national and international flights. Local airports include the Fredericksburg Airport and the Stafford Airport.

Transportation facilities for air, road and rail traffic have been well developed though there is a constant effort in the case of commuter rail and highway development to play “catch-up” with the economic and

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 7

population growth of the region. Adequate transportation systems and linkages are important to the convenience of local residents and are essential for the orderly and timely development of commercial, residential, and industrial projects.

NEIGHBORHOOD

The subject property is located within northwest quadrant of the 1,100-acre Greenbelt Park and a primarily residential section of Prince George’s County known as College Park. The subject is located approximately twelve miles northeast of downtown Washington, directly east of Kenilworth Avenue and less than one mile west of the Capital Beltway. Properties along the western side of Kenilworth Avenue in the neighborhood consist primarily of residential and office uses, with the intensity of these uses increasing as one travels south towards downtown Washington. The subject is bordered to the southwest by a high-rise condominium building that is essentially identical in physical respects to the subject building. The other sides of the subject are bordered by Greenbelt Park.

The subject is very well located for apartment development, given its residential nature, excellent access to the rest of the region via US Highways 495/95, proximity to downtown Washington, and adjacency to Greenbelt Park.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 8

SITE ANALYSIS

Location	The site is located in the northwest quadrant of Greenbelt Park which is situated along the eastern side of Kenilworth Avenue in the College Park section of Prince George’s County, approximately one half mile southwest of the Capital Beltway (US 495/95). The subject site is the northern portion of Parcel B.
Size	The site comprises 6.39 acres.
Excess Land	None
Topography	The site’s topography varies, but has an overall slope down from south to north.
Site Improvements	The subject site adjoins a high-rise condominium property that is located to the southwest of the subject, on the southern portion of Parcel B. While we were not provided a survey or title report for the subject, it appears that these properties share certain site improvements, including interior access roads. Access to the Kenilworth Avenue from the subject property is apparently via an access easement upon this property and low rise condominium buildings to the south of the condominium tower. There is a covered garage for 181 vehicles and open parking for 250 vehicles. There is a swimming pool, a fitness center, picnic areas with barbecue pits and jogging and biking trails. These common areas are reportedly shared with the condominium properties to the southwest.
Street Improvements	Westchester Park Drive is asphalt paved, two-lane, concrete curbed thoroughfare that provides access to the subject from Kenilworth Avenue.
Desirability of Location	Good
Access to Major Arteries	Good
Access to Local Arteries	Good
Curb Appeal	Good
Ingress/Egress	Average
Visibility from Road	Average
Public Transportation	Average
Neighborhood Appearance	Above average

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 9

Easements	The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. As noted, the subject property reportedly shares certain common elements with the condominium properties to the southwest. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments. However in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments.
Soil Conditions	Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted.
Flood Zone:	According to the Prince George’s County officials, the property is located within Zone C, an area outside the 100- and 500-year flood plains. FEMA Map No. 245208-0030D, dated 9/6/960.
Land Use Restrictions	The appraisers are unaware of any deed restrictions, which may adversely affect the utility of the subject site; however, this is not a guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property, which would disclose any land use restrictions that may exist.
Zoning:	The subject site is zoned R-10 (Multifamily High Density Residential) by Prince George’s County. Although the specific requirements for this district were not provided, zoning officials indicate that the subject is a legal conforming use within the district.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 10

REAL ESTATE TAXES

The subject is within the taxing jurisdiction of Prince George’s County, Maryland. The county assesses and collects taxes for all of the jurisdictions in the county. The tax year begins July 1^st. The subject’s assessment and tax information is summarized as follows.

Assessor’s I.D.	2389534 (Prince George’s County Appraisal District 21)
Equalization Rate	100%
Assessment	$18,805,300
Tax rate per $100 of Value	$0.01527
Annual Taxes	$287,156.
Payment Due Date	Taxes are due by September 30th

Properties are re-assessed every three years. We were informed that the subject was last assessed in 2004. Therefore, the current assessment should will change in the upcoming fiscal year. Our market value estimate of $43,800,000 significantly exceeds the assessor’s market value estimate of $18,805,300. A representative of the county assessment office indicated to us that the subject is significantly under assessed, and that the subject’s assessment will likely increase by 50 to 60% in the upcoming year.

In light of the preceding, we have assumed that the subject’s assessment will increase by 55% in the upcoming year. Based on the current assessment and real estate tax rate, this results in estimated real estate taxes of $445,092. Escalating this amount to reflect estimated 3.0% annual inflation in the real estate tax rate, taxes for the upcoming year are estimated at $458,445.

It is an extraordinary assumption of this appraisal that the subject’s actual real estate taxes do not differ significantly from our estimate.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 11

DESCRIPTION OF IMPROVEMENTS

The subject site is improved with a 303-unit, 15 story high-rise apartment complex known as the Towers of Westchester Park. Construction of the improvements was reportedly completed in 1974. The property contains a mix of efficiency, one, two, and three-bedroom units types, with an average units size of 1,103 square feet. There is an average of twenty units per floor.

The T-shaped building features steel frame construction with masonry and brick exterior walls and a flat roof covered with rolled asphalt. There are four internal fire stairs and three, 2,500-pound capacity elevators that service all floors. There is also a smaller handicapped equipped elevator that is for use from the main lobby to the community room. Amenities common to all units include standard electric kitchen appliances (refrigerator/freezer, oven/range, and dishwasher) and decks. Each floor has a trash room with a chute and recyclable bins and a washing room that features two washers and two dryers. Community amenities include on-site management/leasing office, a community room with premium storage, open and covered (at a premium) car parking, and a swimming pool.

Construction details are further summarized as follows.

KTR Site Inspector	Stephen C. Winchester
Date of Inspection	December 4, 2006
Property Contact	Karen Stevenson - On-site Manager
Year Built	1974
Number Units	303
Buildings, Stories	1 building, fifteen-story
Parking	There is an adequate amount of open space parking in the areas surrounding the building and covered parking at a cost.
Foundations:	Reinforced concrete
Frame:	Steel columns
Exterior Walls:	Masonry and brick siding
Roof:	Flat with rolled asphalt
Doors and Windows:	Sliding glass doors to the building’s lobby, and windows are floor to ceiling height aluminum glass. Individual units have hollow core metal. Interior unit doors are hollow-core wood. Windows are double hung with vinyl clad aluminum frames. Each unit features a sliding glass door leading to a concrete patio.
HVAC:	Heating and cooling is provided by a central gas-fired and electric system that provides heated or chilled water to individually controlled fan coil units. A new multi-stack cooling system was installed in July 2006.
Plumbing:	Kitchens contain sink and a dishwasher. Bathrooms contain toilets, and vanity sink and tub/shower combinations with ceramic tile surrounds.
Electrical:	Each apartment has its own breaker box and is separately metered for electricity.
Walls and Ceilings:	Walls are painted sheetrock and ceilings are spackled an/or painted.
Floors:	Interior floors are carpet over padding in living areas and bedrooms with vinyl flooring in the kitchen and bathrooms. Some units feature wood parquet flooring.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 12

Kitchen Equipment:	Built-in cabinets are wood with laminate counter tops and stainless steel sink. Appliances include electric conventional oven, dishwasher, and refrigerator/freezer.
Project Amenities:	Community amenities include on-site management/leasing office, a community room with storage, open and covered (at a premium) car parking, a fitness center, a picnic/barbeque area and a swimming pool. Other site improvements are concrete walkways, and landscaping.

The following chart illustrates the property’s unit breakdown and size.

SUBJECT PROPERTY UNIT MIX AND SIZES

Type	Mix		Size (SF)		Total Size
Efficiency		30		530		15,900
1 BR/1BA Small		16		620		9,920
1BR/1BA Large		108		927		100,116
2BR/2BA Small		57		1,254		71,478
2BR/2BA Large		46		1,357		62,422
3BR/2BA		46		1,618		74,428
Total/Average		303		1,103		334,264

The improvements are of above average quality and in above average condition, with no significant deferred maintenance noted. Appeal is very good, given the layouts of the site and the apartment units.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 13

APARTMENT MARKET OVERVIEW

Apartments remain a staple in the portfolios of institutional investors. Although massive new development in some markets has resulted in diminished investor interest, demand remains very strong in markets with significant barriers to entry. The average overall capitalization rate reported by participants in the Korpacz Real Estate Investor Survey stood at 5.98% in the third quarter of 2006 for the national institutional apartment market, 30 basis points below a year earlier, but only 3 basis points below the prior quarter, reflecting continued but moderating upward pressure on apartment sale prices.

Investors consider apartments to be attractive real estate investments for the following reasons:

1. The diversity of the tenant base in apartment properties reduces uncertainty with regard to releasing risk over time;

2. The strength of rental demand of apartment units is more readily determined from demographic data than most other property types;

3. The short-term nature of most apartment leases forces property managers to adjust rents to market on a regular basis; and

4. The relative stability of apartment cash flows makes multi-family properties a more liquid investment as compared to other types of commercial properties.

The Washington regional apartment market has historically been characterized by stability, with high occupancy rates and increasing rents spurred by household and population growth and a relatively low level of new development.

An erosion of housing affordability is driving demand for apartment units. According to Marcus & Millichap, the minimum household income currently needed to purchase the median priced residence is $132,000 per year, compared with $114,000 per year in the second quarter of 2005. Only 30% of the region’s households earn more than $100,000 per year.

Marcus & Millichap projects that new development in the region will total 4,300 units in 2006, up from 2,700 units in 2005. However, condo conversions earlier in the year reduced inventory by 1,900 units, resulting in a net increase of only 2,400 units. This amount of new inventory lags demand growth resulting from the increasing number of households.

The combination of strong demand growth and restrained new development has resulted in increasing rents and decreasing vacancy. Marcus & Millichap reports that regional vacancy decreased 30 basis points in 2006, to 3.8%. This follows a 70 basis point decrease in 2005. Marcus & Millichap projects average asking rents to increase 4% in 2006, to $1,244 per month. The decreasing use of rent concessions suggests that real rent growth exceeds nominal increases in asking rents.

As a result of the significant cooling in the for-sale housing market, demand for apartment properties from condo converters has decreased drastically. However, demand for rental properties from investors remains strong, and the combination of improving fundamentals and decreasing capitalization rates has resulted in continued value increases.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 14

Market conditions in the subject’s immediate submarket mirror those of the regional market. The occupancy levels for the subject and its competitors are summarized in the following table.

Subject and Competitive Property Summary

Name	# of Units		Occupancy
Subject		303		97	%
The Enclave		1,119		88	%*
White Oaks Tower		432		98	%
Wynfield Park		300		99	%
Seven Springs		986		98	%
The Château		401		99	%
Total/Average		3,541		95	%

* Includes off-line apartments being renovated

As indicated, the subject and its competitors reflect an occupancy level range of 88% to 99%, with an average of 95%. Excluding the Enclave Apartments, which is undergoing a total renovation, the range narrows to 97% to 99%, with an average of 98%.

CONCLUSION: The regional and local apartment markets are strong. With continued demand growth and a low level of new development, the outlook for the regional and local markets is very positive.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 15

ECONOMIC RENT ANALYSIS

Five competitive properties are presented on the following pages. They are located in similar areas like the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 16

Rent Comparable One
Address:	The Enclave
	11215 Oak Leaf Drive
	Silver Springs, MD 20901
Number of Units:	1,119
Age:	1968, currently undergoing extensive renovations
Description:	Three, 19-story high-rise towers.
Amenities:	Apartment features include gas range and electric kitchen appliances, mini and full vertical blinds, dishwasher, garbage disposal and monitored alarm systems. This gated property’s features include a clubhouse, health club, business center, three lighted tennis courts, an olympic size pool, a children’s play area, a convenience store in each building and a laundry room on each floor.
Rental Data:

Unit Type	Unit Size (SF)	Rent/Month	Rent/SF
Studio/1BA	450-555	$885-$935	$1.68-$1.97
1BR/1BA	800 - 910	$1,115-$1,230	$1.35-$1.39
2BR/2BA	1,110-1,150	$1,425	$1.24-$1.28
3BR/2BA	1,215-1,385	$1,630-$1,720	$1.24-$1.34

Landlord Provides:	Cooking gas, air conditioning and heat
Occupancy:	88%. The vacant units reportedly consist primarily of apartments that are being renovated.
Concessions:	One month free rent for certain units.
Comments:	Similar location. Overall superior, due to its design and amenities. All units are being renovated upon tenant non-renewal. The cited rents are for unrenovated units. Rents for renovated apartments are $250 per month more than the cited rents.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 17

Rent Comparable Two
Address:	White Oaks Towers
	11700 Old Columbia Pike
	Silver Springs, MD 20904
Number of Units:	432
Age:	1965
Description:	One, 23-story high-rise tower.
Amenities:	Apartment features include electric kitchen appliances, walk-in closets and balconies (except studios). Property features include a swimming pool, a fitness center, and a basketball court, a beauty salon/barber shop and a convenience store.
Rental Data:

Unit Type	Unit Size (SF)	Rent/Month	Rent/SF
Studio/1BA	605	$945	$1.56
1BR/1BA	806	$991-$1,051	$1.23-$1.30
1BR/1BA/DEN	1,073	$1,114-$1,143	$1.04-$1.07
2BR/2BA	1,093-1,279	$1,164-$1,241	$0.97-$1.06
3BR/2.5BA	1,479	$1,547-$1,555	$1.05-$1.05

Landlord Provides:	All utilities.
Occupancy:	98%
Concessions:	Slightly reduced rents for select unit types.
Comments:	Located approximately six miles northwest of the subject in a less appealing residential setting. Superior amenity package. Inferior quality, design, and appeal.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 18

Rent Comparable Three
Address	Wynfield Park Apartments
	10209 Baltimore Avenue
	College Park, MD 20740
Number of Units:	300
Age:	1998
Description:	Eight, four-story building apartment complex.
Amenities:	Apartment features include air conditioning, all kitchen appliances, garbage disposal, balcony and washer and dryer. Property features include a gated entry, clubhouse with an executive business center, garages and carports (for a premium), a swimming pool and a fitness center.
Rental Data:

Unit Type	Unit Size (SF)	Rent/Month	Rent/SF
1BR/1BA	648-750	$1,230-$1,320	$1.76-$1.90
2BR/1BA	897	$1,445	$1.61
2BR/2BA	1,096-1,177	$1,630-$1,715	$1.46-$1.49
3BR/2BA	1,313	$1,875	$1.43

Landlord Provides:	Trash removal.
Occupancy:	99%
Concessions:	None currently.
Comments:	Good quality apartment complex located approximately three miles northwest of the subject in a less appealing residential setting. Similar amenities. Superior quality and inferior appeal.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 19

Rent Comparable Four
Address:	Seven Springs Village
	9310 Cherry Hill Road
	College Park, MD 20740
Number of Units:	986
Age:	1975
Description:	Three, twelve-story towers and six, two and three-story garden style apartment buildings.
Amenities:	Apartment features include central heat and air conditioning, all kitchen appliances, garbage disposal and balcony. Community features include clubhouse, pool, spa/hot tub, fitness center, playground, business center, basketball and volleyball courts, lighted tennis courts, a mini convenience mall, a hair salon and a licensed childcare facility.
Rental Data:

Unit Type	Unit Size (SF)	Rent/Month	Rent/SF
Studio	598	$1,019	$1.70
1BR/1BA	660-800	$1,080	$1.35-$1.64
2BR/1.5BA	927	$1,400	$1.40
2BR/2BA	920-1,009	$1,424	$1.41-$1.55
3BR/2BA	1,102	$1,614-$1,665	$1.45-$1.51

Landlord Provides:	All utilities
Occupancy:`	98%
Concessions:	Select concessions to Federal employees.
Comments:	Above average quality property located one mile north of the University of Maryland, approximately three miles northwest of the subject. Set next to two large parks with good views of surrounding area. Similar quality, condition and superior amenity package.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 20

Rent Comparable Five
Address:	The Chateau
	9727 Mount Pisgah Road
	Silver Springs, MD 20903
Number of Units:	401
Age:	1972
Description:	Two, fifteen-story towers.
Amenities:	Apartment features include central heat and air conditioning, all kitchen appliances, garbage disposal and balcony. Community features include clubhouse, pool, spa/hot tub, fitness center, playground, business center, and tennis courts.
Rental Data:

Unit Type	Unit Size (SF)	Rent/Month	Rent/SF
Jr 1BR/1BA	665	$990	$1.49
1BR/1BA	965	$1,125-$1,180	$1.17-$1.22
2BR/1.5BA	1,150	$1,420-$1,460	$1.23-$1.27
2BR/2BA	1,250	$1,450-$1,490	$1.16-$1.19
3BR/2BA	1,465	$1,850	$1.26

Landlord Provides:	All utilities
Occupancy:	99%
Concessions:	None currently.
Comments:	Above average quality property located at the southeastern corner of the Beltway and New Hampshire Avenue, approximately five miles northwest of the subject. Similar quality, condition and superior amenity package.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 21

ANALYSIS

The subject property is a well-located, above average quality apartment complex. It has very good appeal due to the fact that the complex is surrounded by Greenbelt Park, affording an unusually high degree of privacy and views.

The tables below illustrate the comparables with the most similar floor plans in relation to the subject’s floor plans.

STUDIO/EFFICENCY FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject Asking	530	$979	$1.85
Subject Average Contract	530	$959	$1.81
The Enclave	450-555	$885-$935	$1.68-$1.97
White Oaks	605	$945	$1.56
Wynfield Park	NA	NA	NA
Seven Springs	598	$1,019	$1.70
The Chateau	NA	NA	NA

ONE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject Asking	620	$1,049	$1.69
Subject Average Contract	620	$1,040	$1.68
Subject Asking	927	$1,269	$1.37
Subject Average Contract	927	$1,229	$1.33
The Enclave	800-910	$1,115-$1,230	$1.35-$1.39
White Oaks	806	$991-$1,051	$1.23-$1.30
Wynfield Park	648-750	$1,230-$1,320	$1.76-$1.90
Seven Springs	660-800	$1,080	$1.35-$1.64
The Chateau	665	$990	1.49

TWO-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject Asking	1,254	$1,559	$1.24
Subject Average Contract	1,254	$1,370	$1.09
Subject Asking	1,357	$1,619	$1.19
Subject Average Contract	1,357	$1,477	$1.09
The Enclave	1,110-1,150	$1,425	$1.24-$1.28
White Oaks	1,093-1,279	$1,164-$1,241	$0.97-$1.06
Wynfield Park	1,096-1,177	$1,630-$1,715	$1.46-$1.49
Seven Springs	920-1,009	$1,424	$1.41-$1.55
The Chateau	1,250	$1,450-$1,490	$1.16-$1.19

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 22

THREE-BEDROOM FLOOR PLANS

Comparable #	Unit Size (SF)	Rent/Month	Rent/SF
Subject Asking	1,618	$1,899	$1.17
Subject Average Contract	1,618	$1,764	$1.09
The Enclave	1,215-1,385	$1,630-$1,720	$1.24-$1.34
White Oaks	1,479	$1,543-$1,555	$1.04-$1.05
Wynfield Park	1,313	$1,835	$1.40
Seven Springs	1,102	$1,614-$1,665	$1.43-$1.50
The Chateau	1,465	$1,850	$1.26

The subject’s asking and average contract rents are consistent with the comparable rents and one another. To estimate potential rental income for the upcoming year, average contact rents will be applied. These rents will be escalated by 1.5% to reflect estimated annual market rent growth of 3.0%.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 23

HIGHEST AND BEST USE

HIGHEST AND BEST USE AS IF VACANT
Surrounding Land Uses: Residential
Physically Possible:	Multifamily residential.
Legally Permissible:	Multifamily, high density.
Conclusion:	As if vacant, a multifamily high-density residential building.
HIGHEST AND BEST USE AS IMPROVED
Current Improvement:	303-unit, 15 story high-rise apartment complex constructed in 1974.
Conclusion:	Continued apartment use.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 24

VALUATION

There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows:

THE COST APPROACH

This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition. The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance.

THE SALES COMPARISON APPROACH

Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm’s length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics.

Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the College Park area, this approach has been employed in the valuation process.

THE INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Leased Fee Estate.

RECONCILIATION AND FINAL VALUE ESTIMATE

The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 25

INCOME CAPITALIZATION APPROACH

Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income, which is then capitalized at an interest rate, or investment, yield commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments.

There are two primary income capitalization methods: Direct Capitalization, which converts a single year’s net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis.

DIRECT CAPITALIZATION

The basic steps in the Direct Capitalization method are as follows:

1.	Calculate POTENTIAL GROSS INCOME from the dwelling units;
2.	Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income;
3.	Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income;
4.	Develop the OVERALL CAPITALIZATION RATE;
5.	Divide NOI by the CAP RATE to arrive at VALUE.

Potential Rental Income: Potential rental income is estimated based on current average contract rents. Rental income is not applied to the unit utilized as a leasing and administrative office. Our calculation of potential rental income is summarized below.

			Potential		Total Potential
Unit Type	Units		Rent		Rent
Efficiency		30	$	959	$	28,770
1 BR, Small		16	$	1,040	$	16,640
1 BR, Large		108	$	1,229	$	132,732
2 BR, Small		56	$	1,370	$	76,720
2 BR, Large		46	$	1,477	$	67,942
3 BR		46	$	1,764	$	81,144
Total/Avg.		302	$	1,270	$	403,948

As indicated, potential rental income is $403,948 per month, or $4,847,376 per year. To reflect estimated annual market rent growth of 3.0% (our general inflation estimate), this amount will be escalated by 1.5%, resulting in estimated potential rental income of $4,920,087 for the upcoming year.

Vacancy and Credit Loss: As of the date of inspection, the subject property was 97% occupied. The subject and the properties identified as competitors within this report reflect an average occupancy level of 95%. Vacancy loss is estimated at 4.0% of potential rental income. In addition, a 1.0% allowance for credit loss is assessed. The combined vacancy and credit loss allowance equates to 5.0%.

Concession Loss: There are some limited concessions employed in the subject market, despite high occupancy rates. At the subject, concession loss increased from 0.3% of potential rental income in 2003

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 26

to 7.2% in 2005. Concession loss decreased to 2.3% for the first ten months of 2006. Considering the subject’s recent operating history and trend, the estimated concession loss is 2.0% of potential rental income.

Utility Reimbursements: Management indicates that utility reimbursements consist primarily of water & sewer charges paid by the tenants. Utility reimbursements increased from $193 per unit in 2003 to $412 per unit for 2005. For the first ten months of 2006, utility reimbursements were $384 per unit on an annualized basis. Based on this operating history, estimated utility reimbursement income for the upcoming year is $400 per unit.

Other Income: Included within this category is the revenue received from such items as application fees, forfeited deposits, late fees, pet fees, garage income and rent premiums for short term leasing. From 2003 to 2005, other income at the subject increased from $547 to $590 per unit, with an average of $562 per unit. For the first ten months of 2006, annualized other income was $624 per unit. Based on this operating history, other income is estimated at $650 per unit for the upcoming year.

Expenses: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed and analyzed. In addition, we have given consideration to the median expenses reported in a recent IREM survey of elevator apartment complexes in the subject area. The following table presents a summary of the subject’s expense history and budget as well as our projection for the upcoming year.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 27

SUMMARY OF HISTORICAL OPERATIONS
THE TOWERS OF WESTCHESTER PARK

	2003						2004						2005						1-10/06 Annualized						KTR FY 2007
	Total			Per Unit			Total			Per Unit			Total			Per Unit			Total			Per Unit			Total			Per Unit
Income
Potential Rental Income	$	3,980,297		$	13,136		$	4,185,004		$	13,812		$	4,691,412		$	15,483		$	4,719,314		$	15,575		$	4,920,087		$	16,238
Vacancy & Collection Loss	$	(111,236	)	$	(367	)	$	(74,845	)	$	(247	)	$	(154,543	)	$	(510	)	$	(155,399	)	$	(513	)	$	(246,004	)	$	(812	)
Concession Loss	$	(11,797	)	$	(39	)	$	(79,792	)	$	(263	)	$	(338,392	)	$	(1,117	)	$	(107,743	)	$	(356	)	$	(98,402	)	$	(325	)
Effective Rental Income	$	3,857,264		$	12,730		$	4,030,367		$	13,302		$	4,198,477		$	13,856		$	4,456,172		$	14,707		$	4,575,681		$	15,101
Utility Reimbursements	$	58,531		$	193		$	60,343		$	199		$	124,831		$	412		$	116,465		$	384		$	121,200		$	400
Other Income	$	165,594		$	547		$	167,068		$	551		$	178,671		$	590		$	188,933		$	624		$	196,950		$	650
Effective Gross Income	$	4,081,389		$	13,470		$	4,257,778		$	14,052		$	4,501,979		$	14,858		$	4,761,570		$	15,715		$	4,893,831		$	16,151
Expenses
Real Estate Taxes	$	239,468		$	790		$	255,148		$	842		$	265,881		$	877		$	274,004		$	904		$	458,445		$	1,513
Insurance	$	50,549		$	167		$	55,300		$	183		$	52,340		$	173		$	64,510		$	213		$	60,600		$	200
Repairs & Maintenance	$	290,639		$	959		$	255,132		$	842		$	244,980		$	809		$	309,858		$	1,023		$	272,700		$	900
Utilities	$	533,047		$	1,759		$	667,229		$	2,202		$	772,530		$	2,550		$	1,023,871		$	3,379		$	909,000		$	3,000
Payroll	$	358,501		$	1,183		$	364,829		$	1,204		$	356,299		$	1,176		$	428,933		$	1,416		$	393,900		$	1,300
Marketing	$	18,346		$	61		$	21,252		$	70		$	42,805		$	141		$	61,108		$	202		$	45,450		$	150
Management Fees	$	162,672		$	537		$	169,438		$	559		$	179,376		$	592		$	189,454		$	625		$	146,815		$	485
General & Adminstrative	$	104,551		$	345		$	114,208		$	377		$	116,123		$	383		$	100,144		$	331		$	106,050		$	350
Reserves	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	90,900		$	300
Total	$	1,757,773		$	5,801		$	1,902,536		$	6,279		$	2,030,334		$	6,701		$	2,451,881		$	8,092		$	2,483,860		$	8,198
Net Operating Income	$	2,323,616		$	7,669		$	2,355,242		$	7,773		$	2,471,645		$	8,157		$	2,309,689		$	7,623		$	2,409,971		$	7,954

Real Estate Taxes:	The derivation of the real estate tax estimate was discussed at length earlier in the report. Real estate taxes for the upcoming year are estimated at $279,687.
Insurance:	Over the past four years, the subject’s insurance expense has ranged from $167 to $213 per unit, with an average of $184 per unit. The 2005 IREM expense survey reports a median insurance expense of $172 per unit. Based on the subject’s operating history and the IREM survey amount, the insurance expense is estimated at $200 per unit.
Repairs & Maintenance:	This category includes all costs associated with the upkeep and maintenance of the property. Over the past four years this expense ranged from $809 to $1,023 per unit, with an average of $908 per unit. Based on this expense history, the repairs and maintenance expense is estimated at $900 per unit.
Utilities:	This expense includes common area electricity, water & sewer (partially reimbursed), and gas and electricity for the complex’s units. From 2003 to 2006, this expense increased from $1,759 to $3,379 per unit. Considering not only this expense trend but also the spike in energy prices experienced in 2006, the estimated utilities expense is $3,000 per unit.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 28

Payroll:	This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. In the past four years, the subject’s payroll expense ranged from $1,176 to $1,416 per unit, with a four year average of $1,245 per unit. Based on this operating history, the estimated payroll expense is $1,300 per unit.
Marketing:	Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. Over the past four years, the subject’s marketing expense increased from $61 to $202 per unit, with an average of $118 per unit. Based on this expense history, the estimated marketing expense is $150 per unit.
Management Fees:	The estimated management fee is 3.0% of effective gross income. This amount is market consistent for apartment complexes of the subject’s size.
General & Administrative:	Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. Over the past four years, the subject’s general & administrative expense ranged from $345 to $383 per unit, with an average of $359 per unit. Based on the subject’s operating history, a general & administrative expense of $350 per unit is estimated.
Reserves for Replacement:	In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to $300 per unit. A reserve for replacement allowance of $300 per unit or $90,900 is estimated for the subject property.
Total Expenses:	Total expenses have been estimated at $2,483,860 or $8,198 per unit inclusive of reserves. The resulting operating expense ratio equates to approximately 51%.
Net Operating Income:	The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital with which to satisfy the debt service, if any, and provide a return on the owners equity. We have estimated the NOI to be $2,409,971.

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 29

INCOME AND EXPENSE PRO FORMA

	Total			Per Unit
Income
Potential Rental Income	$	4,920,087		$	16,238
Vacancy & Collection Loss	$	(246,004	)	$	( 812	)
Concession Loss	$	(98,402	)	$	(325	)
Effective Rental Income	$	4,575,681		$	15,101
Utility Reimbursements	$	121,200		$	400
Other Income	$	196,950		$	650
Effective Gross Income	$	4,893,831		$	16,151
Expences
Real Estate Taxes	$	458,445		$	1,513
Insurance	$	60,600		$	200
Repairs & Maintenance	$	272,700		$	900
Utilities	$	909,000		$	3,000
Payroll	$	393,900		$	1,300
Marketing	$	45,450		$	150
Management Fees	$	146,815		$	485
General & Adminstrative	$	106,050		$	350
Reserves	$	90,900		$	300
Total	$	2,483,860		$	8,198
Net Operating Income	$	2,409,971		$	7,954

Capitalization: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place.

In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property.

Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments.

Most Probable Buyer

Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors.

Survey of Investors

The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the Third Quarter 2006 Korpacz Real Estate Investor Survey, capitalization rates for institutional grade apartment properties range from 4.25% to 8.00% with an average of 5.98%. The subject property is a very well

The Towers of Westchester Park
College Park, Maryland December 4, 2006
Page 30

	located, above average quality property. The subject property would likely appeal to a multitude of national and regional investors.
Market Extraction	The sales utilized in the Sales Comparison Approach reflect a capitalization rate range of 4.1% to 6.5%, with an average of 5.4%. The sales are of regional apartment properties. Given the subject’s location and physical attributes, a subject capitalization rate near the average is appropriate.
Conclusion	Considering the investor surveys and the capitalization rates reflected by the comparable sales, an appropriate capitalization rate for the subject property is concluded to be 5.5%.
Valuation:	Capitalizing the estimated Net Operating Income of $2,409,971 at 5.5% results in a value conclusion of $43,817,655, rounded to $43,800,000.
Value:	$43,800,000

The Towers of Westchester Park	December 4, 2006
College Park, Maryland	Page 31

THE SALES COMPARISON APPROACH

The Sales Comparison Approach to value is the process of comparing recent sales of competitive properties. The estimated value derived via this approach represents the probable price at which the subject property would be sold by a willing seller to a willing buyer as of the date of value.

To estimate the property value by the Sales Comparison Approach, five multifamily apartment property sales, which are summarized in the following table, have been examined and analyzed. All of the sales are in the Maryland suburbs of the Washington D.C. area and within twenty miles of College Park. The sales utilized are located within Silver Springs, Laurel, Germantown and Upper Marlboro.

The price per apartment unit has been relied upon as the unit of comparison in this approach. The comparative process involves judgment as to the similarity between the subject property and the comparable sale property with regard to a variety of factors affecting value such as location, age and condition of the structure, market conditions, rent levels, property rights conveyed, financing terms, conditions of sale, operational efficiencies and other factors.

ANALYSIS OF SALES: The comparable sales are summarized in the following table.

SUMMARY OF COMPARABLE BUILDING SALES

	Sale 1	Sale 2	Sale 3	Sale 4	Sale 5
				Springhouse
Name	Chesterfield House	Charlestowne North	Milestone	Apartments	Cinnamon Run
Location	Arlington, VA	Greenbelt, MD	Germantown, MD	Laurel, MD	Silver Springs, MD
Sale Date	11/06	10/06	3/06	1/06	12/05
Price Per Unit	$110,577	$101,124	$172,743	$145,455	$131,716
OAR	4.1%	6.5%	4.9%	5.6%	5.8%
NOI/Unit	$4,534	$6,573	$8,464	$8,145	$7,640
Number of Units	104	178	576	220	511
Avg. Unit Size/Sq.Ft.	1,216	700	Approx. 1,000	830	1,006
Year Built	1968	1967	1996/2001	NA	1979

The sales reflect per unit prices ranging from $101,124 to $172,743. The primary difference between the comparables and the subject are location, quality, condition and average unit size.

The most value influencing difference between the subject and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparables, we have analyzed the difference between the net operating income (NOI) per unit of the comparables relative to the NOI of the subject property. In this analysis we have adjusted the sale price of the comparables based on the percentage difference in net income. This factor takes into account the adjustments necessary for the aforementioned factors that are considered to have the most impact on value.

The adjustments applied to the comparable sales are summarized as follows.

The Towers of Westchester Park
College Park, Maryland December 4, 2006
Page 32

PRICE PER UNIT ANALYSIS

			Subject	Adjustment	Adjusted
Sale	Price/Unit	NOI/Unit	NOI/Unit	Factor	Price/Unit
1	$110,577	$4,534	$7,954	1.75	$193,985
2	$101,124	$6,573	$7,954	1.21	$122,370
3	$172,743	$8,464	$7,954	0.94	$162,334
4	$145,455	$8,145	$7,954	0.98	$142,044
5	$131,716	$7,640	$7,954	1.04	$137,129

The adjusted unit prices range from $122,370 to $193,985 with an average of $151,573. As discussed in the Income Capitalization Approach, the estimated capitalization rate for the subject is 5.5%. This is just below the capitalization rate reflected by Sales Four (5.6%), which reflects an adjusted unit price of $142,044. A subject value slightly above this adjusted unit price is suggested. Accordingly, the estimated unit value for the subject is $144,000. Applied to the subject’s 303 units, this results in a total value estimate of $43,632,000, rounded to $43,600,000.

Value via the Sales Comparison Approach           $43,600,000

The Towers of Westchester Park
College Park, Maryland December 4, 2006
Page 33

RECONCILIATION

Cost Approach	N/A
Income Capitalization Approach	$43,800,000
Sales Comparison Approach	$43,600,000

Income Capitalization and Sales Comparison Approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration reduces the reliability of this approach. As such, a Cost Approach was not employed.

The value derived from the Income Capitalization Approach is well documented and market oriented. Sufficient sales data was available from the local and regional markets in order to develop a Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized.

FINAL ESTIMATE OF VALUE:           $43,800,000

The market value estimate of $43,800,000 significantly exceeds the tax assessor’s market value estimate of $18,805,300. A representative of the county assessment office indicated that the subject is significantly under assessed, and that the subject’s assessment will likely increase by 50 to 60% in the upcoming year. In light of the preceding, we have assumed that the subject’s assessment will increase by 55% in the upcoming year. It is an extraordinary assumption of this appraisal that the subject’s actual real estate taxes do not differ significantly from our estimate.

ADDENDA

SUBJECT PHOTOGRAPHS

Northerly View

Southerly View

SUBJECT PHOTOGRAPHS

Northeasterly View

Westerly View

SUBJECT PHOTOGRAPHS

Lobby

Community Room

SUBJECT PHOTOGRAPHS

Mail Boxes and Vending Machines

SUBJECT PHOTOGRAPHS

Elevator Lobby

Typical Hallway

SUBJECT PHOTOGRAPHS

Typical Living Space

Typical Bedroom

SUBJECT PHOTOGRAPHS

Typical Bathroom

Typical Kitchen

SUBJECT PHOTOGRAPHS

Mechanical Room

Maintenance Room

SUBJECT PHOTOGRAPHS

Electrical Room

Roof

SUBJECT PHOTOGRAPHS

Swimming Pool and Covered Parking

SUBJECT PHOTOGRAPHS

Cooling Tower

COMPARABLE RENTAL PHOTOGRAPHS

The Enclave

White Oaks Towers

COMPARABLE RENTAL PHOTOGRAPHS

Wynfield Park Apartments

Seven Springs

COMPARABLE RENTAL PHOTOGRAPHS

The Chateau

TAX MAP

TAX MAP

AERIAL PHOTOGRAPH

EX-99.(D)(2)

EXHIBIT (d)(2)

AMENDMENT #1 TO CONTRIBUTION AGREEMENT

     THIS AMENDMENT #1 TO CONTRIBUTION AGREEMENT (this “Amendment”) is made as of the 16 day of January, 2007, by and between VMS NATIONAL PROPERTIES JOINT VENTURE, an Illinois general partnership (“Contributor”), AIMCO PROPERTIES, L.P., a Delaware limited partnership (“Parent”) and AIMCO PROPERTIES, LLC, a Delaware limited liability company (“Contributee”).

W I T N E S S E T H :

     Contributor, Parent and Contributee are parties to that certain Contribution Agreement dated as of August 21, 2006 (the “Agreement”).

     Contributor, Parent and Contributee desire to amend the Agreement to account for the results reflected in updated appraisals for the Real Property, as hereinafter more particularly set forth.

     In consideration of the covenants and provisions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

     1. Defined Terms. All capitalized terms used in this Amendment which are not otherwise defined herein are used with the same meaning attributed to such capitalized terms in the Agreement.

     2. Consideration. Section 1(c) of the Agreement is hereby amended by replacing the reference to “Two Hundred Twenty Four Million Two Hundred Twenty Eight Thousand, Two Hundred Sixty and No/100 Dollars ($224,228,260.00)” therein with “Two Hundred Thirty Million Seventy-Eight Thousand, Two Hundred Sixty and No/100 Dollars ($230,078,260.00)”.

     3. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

     4. No Other Amendments. Except as expressly set forth herein, the parties make no other amendment, alteration or modification of the Agreement nor do they, nor does any of them, by executing this Amendment, waive any provision of the Agreement or any right that they or it may have thereunder.

[Remainder of Page Left Blank Intentionally]

     IN WITNESS WHEREOF, intending to be legally bound, the parties have executed this Amendment as of the day and year first above written.

CONTRIBUTOR: VMS NATIONAL PROPERTIES JOINT VENTURE, an Illinois general partnership
By:	VMS NATIONAL RESIDENTIAL PORTFOLIO I, an Illinois limited partnership
	By:	MAERIL, INC,. a Delaware corporation, its general partner

By:	/s/   Martha L. Long
	Name: Martha L. Long
	Its: Senior Vice President

By:	VMS NATIONAL RESIDENTIAL PORTFOLIO II, an Illinois limited partnership
	By:	MAERIL, INC,. a Delaware corporation, its general partner

By:	/s/   Martha L. Long
	Name: Martha L. Long
	Its: Senior Vice President

PARENT: AIMCO PROPERTIES, L.P., a Delaware limited partnership
By:	AIMCO-GP, INC., a Delaware corporation, its general partner

By:	/s/   Harry G. Alcock
	Name:	Harry G. Alcock
	Its:	Executive Vice President and Chief Investment Officer

CONTRIBUTEE: AIMCO PROPERTIES, LLC, a Delaware limited liability company
By:	AIMCO PROPERTIES, L.P., a Delaware limited partnership, its sole member
By:	AIMCO-GP, INC., a Delaware corporation, its general partner

By:	/s/   Harry G. Alcock
	Name:	Harry G. Alcock
	Its:	Executive Vice President and Chief Investment Officer